Vocus shares dive 15pc after KKR, Affinity abandon takeover talks

Vocus shares have tumbled almost 15pc after KKR and Affinity both dropped out of a $2.2bn battle for the company.

Vocus CEO Geoff Horth. Pic; Hollie Adams

Takeover target Vocus’s private equity suitors have both dropped out of their $2.2 billion bidding war, with neither Kohlberg Kravis Roberts nor Affinity convinced by the ailing telco’s turnaround strategy.

Having pored over Vocus’s books for the last couple of months, both KKR and Affinity have told the telco’s board that they were unable to go through with the original terms put on the table.

Vocus attracted an indicative, non-binding offer from KKR in early June worth about $2.18 billion. A month later, Affinity also made a preliminary offer, matching KKR’s bid of $3.50 a share.

Both initially indicated support for its management’s strategic plans and transformation program.

The board of Australia’s fourth biggest telco said that all negotiations have now stopped and the telco will be forging ahead with its stand-alone business plans.

“The process with the bidders has now concluded and the board is looking forward to working with management to deliver improved returns for shareholders over the medium and long-term future,” Vocus chairman David Spence said in a statement.

At the close, Vocus was trading down 47 cents, or 14.6 per cent, at $2.75.

Mr Spence said an important factor in deciding to end the sale process with KKR and Affinity was the company’s expectation that revenue for the coming year would continue to grow, despite cost headwinds associated with the migration of customers to the federal government’s National Broadband Network and competitive market conditions.

The company said it expected fiscal 2018 revenue of between $1.9 billion and $2 billion, and underlying earnings before interest, tax, depreciation and amortisation of $370 million-$390 million.

Vocus owns telecommunications networks in capital and regional cities in Australia and New Zealand, with a portfolio of brands focused on a range of corporate, small business, government and residential customers. Over the last couple of years, the company has shifted from a concentration on fibre-networks on Australia’s east coast to a broader range of telecoms operations across the two countries, other products including television and insurance services and retailing electricity and natural gas.

Last week, Vocus warned its profit would fall short of guidance and it would take a $1.53 billion impairment hit across its Australian and New Zealand operations.

The company flagged an underlying profit of $152.3 million for the year through June, up 50 per cent on the year before but below the up to $165.0 million it had previously forecast due to higher-than-forecast finance costs and an increasedeffective tax rate.

Earnings before interest, tax, depreciation and amortisation, as well as one-time items, are expected to be $366.4 million, in line with earlier guidance and up 70 per cent on the prior year.

Vocus is due to release its fiscal 2017 result on Wednesday.

With Dow Jones