takeover, page-127

From The Fool todayFriday 25 March 2022)

Key points

• Uniti has been lobbed with 2 takeover offers in just 10 days, with the latest bid coming in at $5 per share
• Today, the company has announced the initial bidder, Morrison & Co, has joined forces with asset manager, Brookfield
• Could the increasing competition foretell a bidding war? Here's what this leading broker thinks :

It’s been a big couple of weeks for the Uniti Group Ltd (ASX: UWL) share price, and there’s potential more volatility (of the good kind) could be on the way.

Over the past fortnight, Uniti has been levelled with 2 separate takeover bids.

Tensions behind the scenes could be high. Top brokers are reportedly predicting that a bidding war for the telecommunications company could soon spark.

At the time of writing, the Uniti share price is $4.77, 2.91% higher than its previous close. It’s also a whopping 44.9% higher than it was at the start of the month.

For context, the S&P/ASX 200 Index (ASX: XJO) has gained 0.39% today.

Watch this space: Will there be a battle to win Uniti?

According to yesterday’s reporting by The Australian, both JP Morgan and Bell Potter believe rival bids for the fast-growing telco could boost the takeover offers put to it higher.

10 days ago, Uniti was approached with a $4.50 per share takeover bid by infrastructure and property-focused asset manager, Morrison & Co.

The offer represented a 43% premium on Uniti’s previous closing price and spurred the company’s share price to gain 27.3%.

Then, after much speculation, the company confirmed it had received a second bid yesterday. This time, the offer was worth $5 per share.

The higher bid was lobbed by Macquarie Group Ltd (ASX: MQG)’s Macquarie Infrastructure and Real Assets Holdings Pty Limited and Public Sector Pension Investment, together dubbed the Connect Consortium.

But JP Morgan reckons the company can do better. It believes Uniti should open its doors to more bidders to bring in higher offers.

In fact, the broker thinks the takeover target could be worth up to $7 per share.

And the latest news on the front might bolster predictions of a bidding war. After yesterday’s close, Uniti announced Canadian asset manager, Brookfield, will be teaming up as a joint bidder with Morrison & Co.

The company also stated that it’s keeping Macquarie’s offer firmly on the table.

Could a bidding war see Uniti offered $7 per share?

“While the reported indicative offer price is 25% above our base-case net present value, we believe it is only fair and there could be further competitive responses,” JP Morgan was quoted as saying in a note to clients, sent prior to Brookfield’s inclusion.

We estimate that $5 per share implies a weighted average cost of capital (WACC) of 6.7%.

This compares to the sales price of Vocus in 2021 at a 5.5% WACC. Applying a 5.5% WACC to Uniti would increase our NPV to over $7 per share.

Given the potential for even more interest and a likely competitive process, we believe it may be in the best interest of shareholders to open the data room to other players.

JP Morgan in a broker’s note to clients, as quoted by The Australian.