Vocus-EQT deal far from certain and no sign of bidding war

Vocus Group CEO Kevin Russell. Picture: Hollie Adams

Vocus Group may be hoping to stimulate some competitive tension to rival EQT Infrastructure’s $3.3 billion takeover attempt, but it may be more difficult than expected.

Brookfield has been tipped as one of the parties considering another bid for Vocus, while QIC and earlier bidders Kohlberg Kravis Roberts and Affinity are being talked about.

It is understood Canadian private equity giant Brookfield’s interest came about a year ago when shares were valued at about half their current price.

Then, shares in Vocus were worth $2.37, equating to a market value of about $1.5bn, but right before EQT’s bid was revealed by the company, the shares were trading at about $3.89, with the group worth about $2.4bn.

Since it was looking last year, Brookfield has purchased Vodafone New Zealand with infrastructure investor Infratil for $3.2bn. Some observers wonder whether it is still interested and whether other suitors will match EQT’s price.

Market observers have suggested that the indicative and non-binding approach of $5.25 a share by EQT appears to be remarkably high, and question if the buyout firm will put forward a firm $5.25-a-share offer once its due diligence is completed.

This is partly because a level of capital will still need to be invested in the Vocus telecommunications network.

Shares in Vocus are trading at about $4.63, so the market is not convinced that a deal will eventuate — whether due to Foreign Investment Review Board restrictions or because EQT may not be ready to stump up $3.3bn after due diligence.

The FIRB could take exception to a foreign owner due to government contracts and its undersea cable linking Australia and Singapore.

KKR walked away from its $2.2bn bid for Vocus in 2017, after carrying out due diligence, due to a lack of confidence in its prospects. And when KKR recently purchased accounting software business MYOB it acquired the company for $3.40 per share after offering $3.77 to gain access to due diligence information.

But telecommunications groups are in favour among infrastructure investors, given large funds eager to put major pools of money to work.

This was evident with the Queensland Investment Corporation bidding for the Australian listed telco Superloop.

JPMorgan is working with EQT, but Credit Suisse may also emerge on the ticket further down the track with a financing role should the private equity firm end up buying Vocus, which is taking defence advice from UBS and law firm Allens.

It is also worth noting that shareholders are backing recently appointed boss Kevin Russell and chief financial officer Mark Wratten to turn around the business, so they may oppose a final low-ball offer from EQT.