AGL could return for another crack at Vocus

Vocus CEO Kevin Russell. Picture: Hollie Adams

It may not be all over when it comes to a deal between AGL Energy and telecoms company Vocus.

Suggestions in the market are that AGL will likely return to the negotiating table at a later stage.

The understanding among some is that AGL wants to pay between $4.50 and $4.60 per share for the business, but the telco provider has not been a seller at that level.

Shares in Vocus yesterday closed steady at $2.97, leaving its market value at $1.85 billion.

The dilemma for AGL is that it needs to search for new earnings avenues at a time that energy retailing comes under threat from government regulation and the introduction of renewable alternatives.

But shareholders were doubtful about an acquisition of Vocus when it announced a plan to buy the business in June for $4.85 per share or $3bn.

This was after EQT Infrastructure offered $5.25 per share, then abandoned its takeover plan after conducting due diligence.

One concern was that AGL was offering to buy the company when others looked at an acquisition but walked away, coming back at a higher price than an original offer that was believed to be $4.80 per share.

But the understanding at the time was that Vocus was not for sale at a lower price.

Another was about slim margins in the consumer telecoms market in which Vocus operates, with Australia’s monopoly wholesale broadband provider the National Broadband Network making it difficult to secure strong returns.

Sources said the challenge for EQT was that the turnaround program for Vocus had not yet been progressed to the point where the telco was an investment-grade asset and it believed a price of $3.3bn for the overall business wasn’t yet warranted.

AGL said customer loyalty and operating cost benefits were part of the rationale for its acquisition, which never eventuated because it walked away after due diligence.

Vocus has UBS as its defence adviser. Working for AGL at the time of its bid were Deutsche Bank and Highbury Partnership.

Others have suggested that EQT could return to the negotiating table in about six months once Vocus chief Kevin Russell has completed the turnaround of the consumer operation and the company is of investment-grade standard.