Shares of telco M1 eased a little yesterday after some of the initial excitement over a potential buyout offer faded and punters re-considered the feasibility of a possible merger with StarHub.
M1 shares fell two cents or 0.91 per cent to $2.17, after jumping 7.88 per cent last Friday right before the firm's major shareholders revealed after market close that they were reviewing their stakes.
But StarHub extended gains to a second day, rising four cents or 1.39 per cent to $2.91, given its smaller increase of 2.14 per cent last Friday.
Singtel rose one cent or 0.25 per cent to close at $4.00.
On Friday, M1's controlling shareholders - Axiata Group, Keppel Telecommunications & Transportation (Keppel T&T) and Singapore Press Holdings (SPH) - said they had appointed Morgan Stanley Asia as financial adviser to assist with a strategic review of their stakes, which "may or may not lead to a transaction".
Some punters saw the stake review as a prelude to a potential merger of Singapore's second and third largest telcos.
RHB Research yesterday said a merger with StarHub should not be ruled out: "M1 is viewed as the weakest of the three telcos in Singapore given its dominant mobile exposure (more than 60 per cent of revenue), and a merger could address commercial challenges."
In January, M1 and StarHub signed a memorandum of understanding to deepen their existing collaborations in mobile infrastructure sharing. The plan involves pooling resources to roll out more cost-effective networks although each telco would still manage its network traffic independently.
Nomura analyst Gopa Kumar said a merger could create a strong player with an up to 50 per cent mobile subscriber share. But consolidation may not get the blessing of the infocomm regulator, as it would effectively bring the market back to three players once Australia's TPG Telecom unveils its mobile services here by September 2018.
Credit Suisse analyst Varun Ahuja agreed, saying: "Consolidation would defeat the infocomm regulator's purpose of introducing competition in the sector."
Mr Ahuja added that consolidation in the Singapore telecom sector is unlikely, at least over the next three to five years.
Other scenarios envisioned by analysts from the M1 stake review include Axiata Group, Malaysia's largest mobile phone operator, picking up the holdings of Keppel T&T and SPH, or an entirely new foreign telco buying control in M1.
"The usual names which come up are Japanese or Chinese telcos," suggested Mr Kumar, noting that the entry of a telco with a strong balance sheet as a key shareholder could improve the spending powers for M1's core business.
Separately, SPH has been upgraded to a "hold" by two brokerages on the chance that special dividends could be distributed in the event of an M1 stake sale. SPH shares rose two cents or 0.57 per cent to $3.55 yesterday.
The media company owns 13 per cent of M1 valued at about 4 per cent of SPH's market cap.
"Review of M1 stake has minimal impact on share price, but could surprise on special dividends if sale is successful," DBS Vickers analyst Alfie Yeo said in a note.