AGL not done with interest in Vocus

AGL Energy may return to its bid for telecommunications provider Vocus, given market uncertainty over EQT’s offer.

New AGL Energy chief executive Brett Redman.

AGL Energy may return to its bid for telecommunications provider Vocus, given market uncertainty over rival suitor EQT’s offer, as the electricity player pursues a major strategy shift under new chief executive Brett Redman.

The power giant said yesterday it had withdrawn a non-­binding indicative offer for Vocus after it was unable to agree on due diligence terms.

AGL chairman Graeme Hunt met his counterpart at Vocus, Bob Mansfield, in late April to indicate the electricity company’s interest in a deal with a preliminary pitch thought to be around the $4.80 a share level.

After the talks between the pair, Vocus returned to tell AGL that a financial buyer had also contacted the telco, ending the power player’s hopes to gain an exclusive period of due diligence for the possible transaction.

The buyer — Swedish private equity giant EQT Infrastructure — swooped in with a bumper offer of $5.25 a share, or $3.3 billion, for the telco, viewed by analysts as well above most market valuations.

Vocus said on Monday that EQT’s proposal was subject to conditions and that due diligence was likely to take several weeks.

Still, with Vocus trading at $4.57, the door could remain ajar for AGL, according to RBC.

“With Vocus currently trading around 13 per cent below EQT’s indicative proposal, we will continue to see how this develops. With the market discounting the chances of a binding bid being forthcoming, there is a chance that AGL may be able to return,” RBC analyst James Nevin said.

The power retailer said yesterday it would continue to assess opportunities to support its strategy, after saying in February that it was mulling growth options to meet the needs of customers, as energy and data value streams converge.

AGL is expected to closely follow the progress of EQT’s bid in the coming weeks, amid speculation from Credit Suisse that it may need a partner to pull off the Vocus deal. Others suggest Foreign Investment Review Board approval may also loom as a hurdle for EQT, given sensitive legacy contracts it holds with ­government.

The move underlines growing pressure on Mr Redman to diversify his company’s core earnings into new markets, with a raft of regulatory and market headwinds in the power sector expected to emerge in the 2020 financial year, pressuring its earnings outlook. AGL views the fast-evolving energy and data sectors, and rising expectations among customers to tap into an interconnected world, as a big opportunity.

Future growth in batteries, smart appliances and electric ­vehicles, paired with its extensive customer network across electricity and gas, could hand one of Australia’s oldest companies an enticing platform for growth by banding together products into a bundled offering.

Even so, RBC said it was wary of AGL making a big one-off ­acquisition into the telco sector.

“While we think there is going to be a natural progression for the utility industry to provide more in home services and management of in-home devices and energy usage, we see this as an evolution over time that AGL can potentially manage organically,” Mr Nevin said. “We would prefer to see AGL make the incremental steps along the path it laid out at its recent results rather than jumping to the end of that path through an acquisition.”

AGL shares fell 0.58 per cent to $20.55 yesterday while Vocus lost 0.43 per cent to $4.59.