Pressured Vocus faces takeover approach

Vocus, which owns the Dodo and iPrimus brands, is still on the road to recovery.

Australia’s fourth largest telco Vocus Group is back on the block, with suitors once again circling the company.

The Australian understands that Vocus, valued at $2.4 billion, has received firm interest from a number of buyers with the telco expected to formally respond to the market on Monday.

Vocus, which owns the Dodo and iPrimus brands, is still on the road to recovery after its disastrous merger with M2 Communications.

A Vocus spokeswoman declined to comment on Sunday.

The $3.8bn merger sealed in 2016 was undone by integration problems that eventually led to a series of profit downgrades and a wholesale clean out of its senior management.

Vocus, which is being advised by UBS, is still feeling the impact of events from several years ago, facing a Federal Court class action on behalf of investors who acquired an interest in the company from November 2016 to May 2017. The statement of claim alleges misleading or deceptive conduct and breaches of continuous disclosure obligations in relation to Vocus’s 2017 earnings guidance.

It’s also no stranger to interest from private equity operators, having already rejected overtures from private equity operators, Kohlberg Kravis Roberts and Affinity Partners, in 2017.

Vocus’s board knocked back the respective $3.50 a share offers, citing their apprehensions to the terms put forward by the suitors.

The aborted negotiations triggered a 22 per cent collapse in the Vocus share price from $3.22 to $2.43 on open the following day.

It’s currently trading at $3.89 a share with the market by and large pleased with the direction Vocus has taken since former Optus and Telstra senior executive Kevin Russell was appointed CEO in May last year.

Mr Russell, along with CFO Mark Wratten, have managed to bring Vocus books in order and is looking to make the most of the fibre and network infrastructure the telco has in its possession, including the Australia Singapore Cable (ASC), which went live last year.

$3.89 Vocus closed down 5¢ q

“Our market share is low relative to our fibre and network infrastructure assets and our priority is to leverage these assets to maximise profitable growth within our core Australian and New Zealand infrastructure focused businesses,” Mr Russell told The Australian last August.

“Our target is to double revenue from these businesses over the next five years.”

The fibre infrastructure, which stretches across the eastern cities and Western Australia, is Vocus’s crown jewel, with analysts highlighting the potential it gives the telco to score customers in the enterprise and wholesale market.

Offering competitively-priced solutions for mid-sized companies gives Vocus a chance to steal market share from Telstra and the telco can also potentially grab a better slice of the government market, according to analysts.

However, any takeover process will have to consider the prospect of some of Vocus’s other business unit, especially its small to medium business-focused Commander brand.

It’s consumer business is also under pressure as the National Broadband Network (NBN) continues to hollow out its margins.

Vocus’s retail business was written down by about $1 billion in 2017 and despite a revamp of the Dodo brand, there’s speculation that Vocus has been looking to offload its consumer business

Meanwhile, Vocus’s $400m New Zealand business, which was taken off the chopping block in April last year, could also be put back to the market,

In August, Vocus took full year dividends off the table after posting a 17 per cent drop in underlying net profit after tax (NPAT) to $127m for fiscal 2018.

Total revenue for the year ended June 30, 2018 came in at $1.89bn, just slightly under the guidance provided by the telco earlier in the year.