HEDGE funds and other speculators bought heavily
into takeover target Hastings Diversified yesterday, anticipating a bidding war after the Australian Competition and Consumer Commission gave APA Group the green light to pursue the company.
APA launched a cash-and-scrip offer for Hastings Diversified, a pipeline owner, valuing it at about $2.10 late last year.
Its offer has been eclipsed by a bid from Pipeline Partners Australia, 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 $2.525, before closing at $2.485, up 13.5?, with more than 34 million shares changing hands. That is equal to more than 6 per cent of the capital.
Late on Thursday, the ACCC allowed APA's bid to proceed, as long as it disposes of the Moomba-Adelaide pipeline. Analysts speculated that the pipeline is worth about $400 million, although UBS told clients it could be worth as much as $550 million.
Analysts with UBS and Citi estimate APA could raise its offer to as high as $2.50 and still make the deal work for its 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," Citi wrote in a research note. "This assumes the existing scrip ratio and APA share price of $5 per share."
Separately, Deutsche said Pipeline Partners Australia could "easily pay about $2.45 for Hastings Diversified".
"This also applies to APA; we estimate APA can pay up to around $2.60", based on the revenue outlook, Deutsche said.
Concern that it could overpay saw APA shares marked down yesterday, shedding 12? to close at $4.96, due to worries that future cash flows and shareholder dividends might be hit.
APA is expected to raise its offer next week, in return for access to the company's books for a detailed assessment.