Vocus in play after private equity group lobs $3.3bn bid
Vocus has hung out the ‘for sale’ sign and opened its books to Swedish private equity player EQT.
Vocus Group has hung out the “for sale” sign and opened its books to Swedish private equity player EQT while hoping that other suitors will look to best the $3.3 billion indicative offer on the table.
Vocus shares hit a two-year high on the news yesterday, closing the session 17 per cent higher at $4.55. However, this was well below the $5.25 a share put on the table by EQT.
They were trading at $3.89 before EQT’s pitch was made public.
EQT, which has made its offer through its infrastructure arm, has been granted non-exclusive access to the telco’s books. The proposal is subject to several conditions and Vocus said the due diligence was likely to take several weeks.
Vocus’s senior management will welcome the attention, especially as fibre infrastructure is becoming increasingly attractive to fund managers.
“There’s a real interest from fund managers in infrastructure,” New Street Research analyst Ian Martin told The Australian. “We have seen a $494 million bid for fibre infrastructure owner Superloop and Vodafone New Zealand was picked up by Infratil and Canadian fund manager Brookfield.
“They don’t want to be telco operators but want to provide access to the infrastructure to other service providers.
“The complication with Vocus is that its rivals, both in fixed and mobile, have their own infrastructure and there’s not a lot of market left for it to increase the utilisation of its assets.”
A potential sale will dismantle the final vestiges of the ill-fated $3bn merger between Vocus and M2 Group in 2016.
The merger was designed to stitch Vocus’s infrastructure and M2’s consumer businesses — Dodo and iPrimus — together and give the combined business a chance to leverage its fibre infrastructure to steal corporate and retail customers from the likes of Telstra and TPG Telecom.
Vocus increased its fibre holding later in the year by buying Nextgen Networks for $807m, picking up two subsea cable development projects, the North West Cable System and the Australia Singapore Cable as part of the deal.
Its shares hit $9 at the time of the consolidation but the subsequent three years have been chastening for Vocus and its shareholders.
The telco struggled to integrate the businesses, management disputes saw Vocus founder James Spenceley and director Tony Grist leave the group and the telco subsequently posted a series of profit downgrades.
Private equity heavyweight Kohlberg Kravis Roberts and Affinity Partners came knocking in 2017 as Vocus struggled to contain the damage.
However, their separate $3.50 a share offers were knocked back by Vocus.
By March 2018, Vocus chief executive Geoff Horth and chairman Vaughan Bowen had also left the telco and former Optus and Telstra senior executive Kevin Russell was brought in to clean up the mess.
“The Vocus-M2 merger was a poorly considered merger in that the infrastructure that Vocus has just didn’t match the customers and the traffic that M2 had,” Mr Martin said.
The new management has managed to bring some order but Vocus still has some way to go in its recovery process.
It posted a 29 per cent drop in underlying net profit after tax of $48.8m for the first half of fiscal 2019. Revenue for the period was flat at $974.2m, with revenue at Vocus’s consumer and SMB units sliding 12 per cent and 27 per cent respectively.
One bright spot was Vocus’s Networks division, which increased its revenue by 27 per cent. It is the telco’s infrastructure portfolio that’s widely seen as the main attraction for private equity suitors.
According to Mr Martin, a private equity owner will look to offload Vocus’s underperforming business units, including Dodo and iPrimus. However, finding a buyer may not be that straight forward in the current regulatory environment.
“Neither Telstra or TPG will be allowed to buy anything.” he said. “Optus may be a possibility because they have much less market share in the fixed broadband and Vocus is close to the telco and has a mobile reseller agreement with it.
“But the Australian Competition and Consumer Commission is likely to have a problem with that as well.”
Vocus is being advised by UBS and law firm Allens.
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