Hedge funds play the Maxis takeover story

A $240 million block trade in Maxis shares is completed at a 0.5% discount to the adjusted buyout offer, providing hedge funds with an arbitrage opportunity.
An existing shareholder of MalaysiaÆs leading mobile phone operator Maxis Communications yesterday decided to sell the equivalent of a 2% stake in the company, which is currently the subject of a $4.6 billion buyout bid from its controlling shareholder, billionaire T. Ananda Krishnan.

The off-market block trade, which was arranged by Morgan Stanley, was done at a discount to KrishnanÆs outstanding offer price, resulting in an arbitrage opportunity. According to a source familiar with the transaction, some 10 hedge funds, most of which specialise in event-driven strategies, jumped at this opportunity and the M$824.7 million ($240 million) deal was covered in about 10 to 15 minutes.

The block, which consisted of 54.17 million shares, was offered at a fixed price of M$15.225, which represents a discount of 0.5% to the adjusted takeover price of about M$15.30 per share. Krishnan initially offered to pay M$15.60 per share, but this has been adjusted downwards to account for a final dividend of M$0.3014 per share after the stock went ex-dividend on May 31.

As the takeover is now highly likely to be completed within the next month, the share price doesnÆt move much anymore and has in fact closed at M$15.30 in five of the past eight sessions, making it difficult to do this kind of arbitrage trade in the market. The share price did jump 17.7% to M$15.30 in one single session after the takeover offer became known on May 3 and has hovered in a very tight range around there ever since.

From the point of view of the seller, however, it would probably not have been able to achieve this high a price in the market given that the daily trading volume in now down to less than 5 million shares on a typical day. The seller wasnÆt disclosed.

The transaction was similar to a $249 million block trade that Morgan Stanley arranged in February for an institutional seller of South KoreaÆs LG Card, which was also in the midst of a takeover at the time. When the placement took place, at W60,600 per share, Shinhan Financial Group hadnÆt officially launched an offer for shares held by minority shareholders, although it was widely expected that the terms of that offer would be the same as for the shares held by the creditors û i.e. at a price of W67,770 per shares.

Krishnan and his partners want to buy the 40% of the mobile operator that they donÆt already own to give them more flexibility to expand into faster growing markets like India and Indonesia. Chief executive Jamaludin Ibrahim said last month that Maxis plans to spend up to M$15 billion ($4.4 billion) on capital expenditure in Malaysia, Indonesia and India over the next three years to expand coverage.

ôWe think privatising Maxis eases strategic options in MaxisÆ overseas expansion strategy,ö Citigroup analysts Karen Ang and Anand Ramachandran argued in a research note at the time the takeover became public. ôBoth India and Indonesia come with M&A potential. Being public comes with more elaborate and time-consuming disclosure and approval processes, which can now be avoided.ö

Maxis owns 74% of unlisted Indian mobile operator Aircel, IndiaÆs fifth-largest GSM operator, and earlier this year increased its stake in unprofitable Natrindo Telepon Selular in Indonesia to 95% from 51%.

The buyout offer, which will be the largest corporate transaction ever in Malaysia, values the company at M$39.5 billion ($11.6 billion).
¬ Haymarket Media Limited. All rights reserved.
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