An expected resurgence in mergers and acquisition activity in Australia this year will likely filter into over-the-counter equity derivatives, according to Aussie equity professionals. "Last year it was rather lackluster but it seems to be back on the radar," said one equity head. As the economic environment has stabilized after the shock of Sept. 11, corporates in Australia are again looking at M&A.
Luke Randall, managing director of trading and derivatives at Salomon Smith Barney Australia in Sydney, noted that both potential acquirers as well as speculators can use derivative instruments, such as call options, to build M&A plays. "We've seen it many times before," he said. While the majority of merger-related option activity likely will occur on the liquid exchange-traded market, some of it will filter into OTC derivatives. A recent report by SSB singled out 12 potential acquisition candidates in Australia and traders said several deals are already emerging, such as food group Burns, Philp & Co.'s bid for Goodman Fielder. One trader estimated up to five deals could hit the market in the coming months.
Greg MacKay, head of equity derivatives at Macquarie Bank in Sydney, said complex corporate deals structured via OTC derivatives will also likely follow a pick up in M&A activity.