The takeover battle for affordable accommodation developer Eureka (Eureka Group Holdings Limited (ASX:EGH)) is heating up with an unknown party appearing to build up a stake on the register, while rival group Aspen (Aspen Group (ASX:APZ)) is preparing a formal merger bid to create a $500 million entity. The Australian can reveal that a parcel of 18 million shares traded at 53.5 cents on March 5, 2024, following a trade last March 1, 2024 when eight million shares went through at 50 cents. The move - potentially by a wealthy individual - reflects the interest in housing stocks this year, with the race on to build up an institutional-sized player in affordable housing.

Aspen kicked off property merger plays this year by proposing a bid for Eureka in January to create an enlarged company that it says would help transform the industry. The contest for Eureka is likely to become more intense after the two lines of shares were traded, and large existing investors were offered a premium for their stock via broker Ord Minnett. Aspen's bid for Eureka is scrip-based: Eureka shareholders would receive 0.26 shares in Aspen for each of their shares.

But the offer price is effectively below Aspen's trading price and the large share trades. Ord Minnett was ringing shareholders on March 4, 2024, testing their interest in selling stock at more than 50 cents per share, before the larger trade went through on March 5, 2024. Industry players have suggested there may be an arbitrage player seeking to get a position before Aspen came back with a higher offer, or, as appears more likely, potential strategic interest in the business from another -investor.

If Aspen's plan went ahead, the merged group would initially have book equity of about $500 million, more than three times the current scale of Eureka, and also enlarge Aspen. But Aspen's offer is for a nil-premium merger, as it said both its own shares and Eureka's had been shifted by the potential for a takeover offer since it took a 13.7% stake in Eureka in December 2022. Eureka has said Aspen's offer is inadequate and undervalues the company, as the price is either a discount or no meaningful premium over Eureka's share price at any time in the past 12 months.

It says the bid undervalues the underlying strength of Eureka's business model and its future growth potential. The success of the takeover will partly hinge on fund manager Cooper Investors, which has a 19% stake in the target and about 10% of Aspen.