That is an interesting calculation but, though not a statistician, I would hesitate before calculating the likelihood of a counter-bid using probability theory because it will be one event that might happen in relation to one stock that I am looking at and chance has less to do with it than the commercial benefits or otherwise.
What I looked at was the pricing by the market of the 2p reserves of, respectively, Baytex and MRO. The market (TSX) values Baytex 2p reserves quite highly and Baytex can afford to pay more for AUT and still add value - the acquisition will be funded principally by a share issue.
MRO's reserves are valued at less by the market (NYSE) and the current bid price would leave MRO pretty neutral.
However, MRO is more of a global company and some of its production (Norway and UK in particular) is in high tax regions. The value of reserves in these regions should be lower for that reason. It also has reserves in less secure (as compared to Texas) parts of the world and those reserves might be valued at a discount to those in the US.
MRO may not need to issue new shares: it has a programme of share repurchases.
So, could MRO pay a premium of 10 - 15% of the current bid price? If it values the Texan reserves at that level of premium as compared to its other reserves, the answer has to be 'yes'.
Market reaction? That acreage is turning around from cash investment into cash productive. If MRO uses cash/debt to finance the acquisition, it will start to pay down by the end of this year. There is no risk attaching that MRO is not already familiar with and the upside potential is better known by MRO than by anyone else.
This does not answer the question: 'will MRO make a counter-bid?'
The Company is unlikely to make one unless it gets positive feedback from its brokers and large shareholders - its BoD appears to be more sensitive to external views than the AUT BoD over the last year or so. It would be an opportunist bid for a partner in a JV project at a price that would be below Euroz's target for AUT at a time when the AUD appears to be weak against the USD and the opportunity has arisen in consequence of an opportunist bid by a competitor that it might not wish to have as a JV partner.
If MRO is considering a counter-bid, it will probably also consider buying out the other two minority partners and may be talking prices with them.
So, if it is considering a bid, it first has to decide whether it will buy out the minorities as well; then it has to price the bid; then it has to sound out market views on the proposal.
The big market players will probably have an idea whether MRO is giving the possibility consideration.
As to PIs: well each to his/her own. I have already said that I have no alternative investment in mind at the present; that I can achieve a tax saving by moving the disposal into the 2nd week of April, well before the completion of the bid; that I would not be particularly worried if the Baytex bid collapsed (provided that Jon S takes back greater control); and I therefore consider the decision to hold to be obvious in my situation. There is danger of further weakening of the AUD but the company is basically a US asset and the GBP may weaken ahead of the referendum for Scottish independence in September.
The big players in the market may be playing a probability game but I think it more likely that they are keeping an eye and ear out for MRO's actions and taking the view that it might be worth risking a few cents.
Sharejon: you say that you hold no stock but that your sentiment is 'hold'?
AUT Price at posting:
$4.12 Sentiment: Hold Disclosure: Held
