Alinta could � if, if and if - Business - Business - smh.com.au

A STRANGE thing happened in the sharemarket yesterday. Just after lunch it was abuzz with rumours AGL had scheduled meetings with large investors in its takeover target, Alinta, to coincide with an announcement. The assumption was AGL was about to lift the offer price. Not surprisingly, the Alinta share price soared.

In response, the AGL machine moved into action, assuring anyone that might have heard this speculation that there were no unscheduled meetings with institutions on Friday and that no announcement was pending.

Maybe everyone was getting a bit excited because Alinta's boss, Bob Browning, was seen wandering through the lobby of Sydney's Westin Hotel yesterday rather than picking up his dinner suit from the cleaners before joining the throng of West Australian dignitaries for the 10-year celebration of John Howard's prime ministership at Perth's Hyatt.

Or perhaps there are too many trigger-happy traders second-guessing how this messy corporate scenario will play out.

At this stage, Alinta has a hostile bid on the table for AGL and AGL has one on the table for Alinta. Both are scrip bids that imply consistent values. Both have similar strategies on how to deal with the combined assets on completion of a deal.

The main thing on which they disagree is who will run the show.

Alinta has a couple of significant advantages in the battle. Firstly, it already has a near 20 per cent interest in AGL, so getting to a position of control is not quite as tough. It also has first-mover advantage, which means it's ahead in the race of time.

In AGL's favour there is size. If AGL wants to outbid Alinta, it can. On the other side of the coin, Alinta can only capitalise on its timing advantage if various regulators allow it. The first is the Australian Competition and Consumer Commission. Not much has been said about the part the ACCC will play because there is a general view that neither company's proposal will be particularly problematic.

But Alinta cannot seize on its time advantage until the ACCC has made a ruling, and it's only early days yet.

Alinta also has an issue on when it is able to dispatch its offer documents and start the clock ticking on the six-week minimum offer period. This uncertainty arises because Alinta had to amend the bidder's statement, so it could lose a couple of weeks.

Finally, the Alinta strategy depends on a ruling from the Takeovers Panel, and this is a particularly important decision. AGL wants the panel to rule that Alinta cannot drop its 50.1 per cent minimum acceptance condition.

This is because Alinta clearly plans to drop this condition so it can increase its shareholding in AGL to get control, throw out the AGL board and at some later stage move to mop up the minorities. In this instance control could be as little as 30 per cent and it already has 20 per cent.

If it can do all this before AGL gets a chance to put its offer before shareholders then Alinta could win the race.

But the timing is finely pitched.

Realistically, small shareholders are not about to sell their AGL shares to Alinta. Institutional shareholders will be reluctant too because the offer is for scrip and the big boys don't move until the death knell of any takeover offer.

If the Takeovers Panel allows Alinta to remove the conditions, it can move into the market and buy shares for cash - the institutions will be happier with this.

But the window will be limited. Once AGL's offer is capable of acceptance it can join the game by declaring its offer free of conditions and wading in itself to pick up Alinta stock for cash.

In this scenario, no one wins. And both parties look like they have engaged in a stupid exercise of muscle, using shareholders' money.

So don't be surprised if AGL does try and sweeten its offer. It can't get too generous because an increased scrip offer will dilute its shareholders. Raising its offer also flies in the face of AGL's argument that it proposes a merger and therefore should not offer any premium over fair value.

The outcome should be a negotiated settlement between the two parties that includes them demerging their retail assets from their infrastructure assets.

While Bob Browning at Alinta sees he has a chance to win control because of his timing advantage, peace is unlikely to break out.

So let's just see what the Australian Securities and Investments Commission, the ACCC and the Takeovers Panel have to say.