Direct Anywhere:
What these figures really mean was that as of last night the hedge funds thought they could make more money over the next fortnight by playing the arbitrage game with their 36% vs. the additional 20% that they thought APA woudl need.
The plan by the hedge funds was for the deal to get just over 50% acceptance last night (50.001% ideally) as this would give them the greatest amount of latitude to pressure the market over the next two weeks and make a few more million.
Exactly. They were all sitting around in a daisy chain waiting for the other guys to sell and push it over 50%, so that they could spend the next fortnight arbitraging a few cents per share. And they blew it (or at least it looks like they might have.)
The other thing I did wonder is whether the hedge fund that apparently scuttled the deal had shorted a whole lot of the stock in the expectation that the price would drop when they reneged on their offer? Volumes were through the roof on Wednesday, so that is a possibility.
Margaret Jackson was correct in at least one thing - the QANTAS share register is now dominated by people (ie foreign hedge funds) who have no interest whatsoever in the long term viability of the airline. Assuming the bid IS dead, and the hedgies dump their holdings and take the loss, who will emerge as the new major stakeholder? Would any cashed up foreign airlines be interested in taking a new stake?
SW
PS: 'holic - just saw your post. An arbitrage strategy is about exploiting two different prices for the same thing (in this case the QANTAS shares). You are right, the APA offer price is fixed at $5.45 - but the shares are still trading heavily on-market at a discount to that price (last trade was $5.38). In simplified terms, if you buy the share on the market yesterday morning at $5.38, you can accept an offer of $5.45 from APA that afternoon. Take out brokerage and on-costs and you can make a couple of cents per share. If you buy and sell enough shares often enough, you can make plenty of money.
If the market expects the takeover to succeed, theory says that you would expect the market price to move towards the offer price to remove the arbitrage opportunity (because all other things being equal, the underlying asset should not have two different prices). In this case, there was sufficuent downside risk perceived (ie people thought the bid would fail with subsequent drop in trading price) to keep the arbitrage in play. The hedge funds want to continue their trading for another two weeks, making a cent or two a time. That's the idea, anyway - but they may well have been too smart for their own good by holding out too long. Let's hope so anyway.
cheers,
SW