Vocus gets $3.42bn takeover offer from Macquarie Infrastructure and Real Assets Holdings

Vocus shares surged as the telco provider explores the approach from Macquarie Infrastructure and Real Assets Holdings.

Vocus CEO Kevin Russell. Picture: Hollie Adams

Telecommunications provider Vocus Group soared on Monday after it said it received a takeover proposal from Macquarie Infrastructure and Real Assets Holdings valuing it at $3.42 billion, potentially igniting a bidding war for the telco and its lucrative fibre assets.

Vocus said it has agreed to explore a potential deal and has allowed Macquarie to scrutinise its books, while cautioning there is no certainty this would result in a binding offer.

Macquarie made an indicative offer worth $5.50 a share, representing a 26 per cent premium to Vocus’s closing stock price of $4.38 on Friday.

Vocus shares shot up 17 per cent in early trade, but still well short of Macquarie’s $5.50 offer. It closed up 12.8 per cent at $4.94 per share.

The company has been the subject of multiple ill-fated pursuits in recent years. In 2019, EQT Infrastructure mounted a $3.3bn takeover for Vocus, shortly before an AGL made an offer, but both walked away after conducting due diligence. Other proposals in 2017, from Kohlberg Kravis Roberts and Affinity Partners worth $2.2bn, were also dropped.

It also follows a blockbuster bidding war last year for rival Opticomm, between superannuation fund Aware Super and the ultimately successful bidder Uniti Group.

Vocus, which operates over 30,000 kilometres of fibre across Australia as well as in international network stretching to Singapore, Hong Kong and the US, has been preparing to spin off its New Zealand communications and energy business via an initial public offering by the end of its 2021 financial year. It said in November the move would provide balance sheet flexibility and the opportunity to review its long-term dividend policy.

Vocus has not paid a dividend since fiscal 2017 amid fixed-line revenue headwinds from the Australian government-owned national broadband network.

It reported a $178.2 million net loss in FY 2020, primarily due to a $202.1 million writedown of its Australian retail business on the uncertain outlook caused by the coronavirus pandemic, but is nearing the end of a self-described three year turnaround.

Chief Executive Kevin Russell said in October that Vocus was on track to hit guidance for FY underlying earnings before interest, tax, depreciation and amortisation of between $382 million and $397 million, an on-year increase of between 6.0 per cent and 10 per cent.

Macquarie’s MIRA funds have owned and invested in critical telecommunications infrastructure for about two decades, spanning assets such as fibre and cable networks, broadcast infrastructure, secure mobile networks, and mobile towers. In 2019, Macquarie’s European Infrastructure Fund 6 finalised the acquisition of KCOM Group, a UK provider of essential telecommunications infrastructure and services to households and businesses in the Hull and East Yorkshire region.

Macquarie Group - MIRA’s parent entity - has also pushed directly into the mobile phone market via Nu Mobile, which focuses on mobile phone plans bundled with used handsets.

“The board has concluded that it is in the best interests of Vocus shareholders to explore the potential for a transaction with MIRA, and has granted MIRA due diligence access to enable MIRA to potentially put forward a binding proposal,” Vocus’ management said in a statement on Monday.

“There is no certainty that the proposal will result in a binding offer for Vocus.”

In an interview late last year Vocus chief executive Kevin Russell told The Australian that the company’s planned turnaround was “firmly on track”, and that it had had met all aspects of guidance provided in July 2019.

“It’s been a year of a lot of change and events we all know about. We’ve had a strong year of execution, we’re in the second year of a turnaround and we are rock solid on track,” he said in an interview.

“We’re in a good place, we’re having a good year, and we’ve got momentum going in to 2021.

“We’ve had three years of significant legacy revenue erosion, as fixed voice revenues have eroded and we’ve had this migration from the ADSL to NBN. We’re getting towards the tail end of that erosion, and we’re seeing our consumer business returning to growth. That’s a big statement to make.

“By the end of 12 months we will be growing strongly as an overall group, with good momentum and a good operational platform. We’re right on track two years in, and I’m very confident with where we’re going.”

Sam Pratt, the chief executive of Australian network infrastructure start-up Render, said Uniti Group's Opticomm move last year showed how highly prized fibre assets are here in Australia, and a similar dynamic is playing out at scale in the US.

He said more bidders would likely be interested in Vocus and its host of assets, which include data services outfit Air Trunk and wireless tower operator Axicom.

“Fibre networks are now considered infrastructure investment-grade and increasingly attracting a broad range of suitors from outside of telecommunications,” he told The Australian.

Render CEO Sam Pratt. Source: Supplied.

“The perfect storm of COVID-driven connectivity demand and negative interest rates is driving inflows from private investment. This is matched with state and federal government programs that will see greater than $US100 billion invested across the US in 2021 alone.

“Assets of the quality Vocus has built and acquired over the years may never be in higher demand, and based on what we‘re witnessing in the US, this recent wave of consolidation has a way to run yet.”

Vocus has appointed Credit Suisse and Allens as advisors on the proposal.

Additional reporting: Joyce Moullakis, Dow Jones Newswires