SINGAPORE (Nov 5): CGS-CIMB Securities is downgrading M1 to “hold” with an unchanged target price of $2.06 on expectations the Voluntary General Offer (VGO) will go through and that Axiata is unlikely to make a counter-bid at a much higher price.

As at 1.31pm, shares in M1 are trading 1 cent lower at $2.10.

“Other shareholders will accept the VGO, says Foong, as M1’s share price will likely drop if the VGO is called off,” says CGS-CIMB analyst Foong Choong Chen in a Nov 2 report.

In late Sept, Keppel Corp and Singapore Press Holdings (SPH), via Special Purpose Vehicle Konnectivity, made a pre-conditional VGO for all M1 shares at $2.06 per share in cash. Konnectivity and parties in concert have 33.27% deemed interest in M1.

The VGO is pre-conditioned on regulatory approval and upon Konnectivity obtaining more than 50% of M1 at close of offer.

If the pre-conditions are met, a firm offer could be made in three weeks’ time from Nov 22, while the earliest possible close of offer is by Jan 10. There is no intention to keep M1 listed if the free float requirement is not met.

Shortly after Keppel-SPH’s VGO, Reuters reported that Axiata is likely to reject the offer and is in talks to team up with other firms to make its own counter-bid.

“Unless it is able to find a partner that is willing to fund most of the counter-bid, we think Axiata is likely to accept the VGO offer so as to avoid overstretching its balance sheet,” says Foong.

Axiata will also prefer to redeploy capital into its core businesses, rather than have it stuck in Singapore. Its initial investments in M1 have also been fully recovered via the last 13 years of dividends.

“Hence, we downgrade M1 from ‘add’ to ‘hold’ with an unchanged target price of $2.06 based on the VGO price,” says Foong, adding M1’s 14.6x FY19F EV/OpFCF is in line with the Asean telco average.