HEDGE funds and other market speculators bought heavily into shares in takeover target Hastings Diversified yesterday, in anticipation of a bidding war erupting after the competition watchdog gave APA Group the go-ahead to pursue the company.
APA launched a cash and scrip offer for Hastings Diversified, a pipeline owner, valuing the target at about $2.10 late last year.
Its offer has been eclipsed by a bid from Pipeline Partners Australia, which is a consortium of Canadian and local investors, offering $2.35.5 cash a share.
In heavy trading yesterday, Hastings Diversified shares were pushed to a new high of $2.52.5, before closing at $2.48.5, up 13.5?. More than 34 million shares changed hands, which is equal to more than 6 per cent of the capital, although with 30 per cent of the capital already held by the competing bidders, the percentage of capital changing hands was much higher.
Late on Thursday, the Australian Competition and Consumer Commission allowed APA's bid to proceed, as long as it disposes of the Moomba-Adelaide pipeline, which analysts speculated to be worth about $400 million. UBS told its clients the asset could be worth as much as $550 million.
Analysts with UBS and Citi estimate APA could raise its offer for Hastings Diversified to as high as $2.50 a share and still make the deal work for its own shareholders.
"We think that APA could increase the cash component of the bid by another 40? [per share], implying a value of just over $2.50" for Hastings Diversified shares, Citi informed its clients in a research note. "This assumes the existing scrip ratio and APA share price of $5 per share.
"However APA also has the flexibility of increasing the scrip component of the bid."
Deutsche said Pipeline Partners Australia could "easily pay about $2.45 for Hastings Diversified based on only existing contracted ... revenue and equal sharing of cost saving. This also applies to APA; we estimate APA can pay up to around $2.60 based on" the revenue outlook, Deutsche told its clients, "and still achieve modest valuation accretion".
Hastings Diversified's growth prospects indicates it could be worth as much as $3 a share.
APA shares were marked down yesterday over concern it may pay too much, shedding 12? to close at $4.96 due to concerns cash flows and shareholder dividends may be hit if it is lured into a bidding war.
With the ACCC clearance, APA is expected to raise its offer for Hastings Diversified next week, in return for gaining access to the company's books so it can assess the company's prospects.