Vocus optimistic after acquisition talks end

Private equity companies unable to come up with acceptable terms for takeover, board says

Discussions over a possible acquisition of Vocus have ended after the two private equity companies that expressed an interest in the telco were unable to come up with terms that were acceptable to the telco’s board.

In June, Vocus received an indicative and non-binding proposal to acquire 100 per cent of the ASX-listed telco from US-headquartered private equity firm Kohlberg Kravis Roberts & Co. L.P. KKR offered $3.50 cash per share.

In July, Asian private equity firm Affinity Equity Partners lodged a preliminary takeover bid for Vocus, also offering $3.50 cash per share.

Vocus became Australia’s fourth-largest telco after acquiring M2 in 2016. Its brands include Dodo, iPrimus, Commander and Engin. In New Zealand it also owns Slingshot, Switch, Flip, Orcon and 2Talk.

Both KKR and Affinity were given the opportunity to conduct due diligence in order to determine whether either wanted to move forward with an acquisition process.

“Throughout the due diligence process the Bidders indicated support for management’s strategic plans and transformation program,” a statement issued this morning by Vocus said. “However, the Bidders have now advised that they are unable to support a transaction on terms acceptable to the Board. Accordingly all discussions have now ceased.”

“Following the receipt of the initial, indicative proposals from the two parties, we believed it was in shareholders’ best interests to grant those parties the opportunity to conduct non-exclusive due diligence,” Vocus chairperson David Spence said.

“Throughout this process the company continued to pursue its standalone business plans and its transformation program outlined at the company’s recent investor day in June. 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 earlier this year downgraded its earnings guidance; however the company this morning said that its FY18 outlook was an important factor in the decision to terminate acquisition discussions.

Vocus said it was expecting revenue of $1.9 billion to $2 billion and underlying EBITDA growth to between $370 million and $390 million.

“This forecast growth is in spite of the headwinds created by the deferred subscriber acquisition cost benefit to EBITDA of approximately $41m in FY17,” Vocus said.

“Notwithstanding the competitive market conditions, and the increased costs associated with the migration of customers to the NBN, the Board is confident that the Company can deliver a return to sustainable organic growth following a year of transition in FY17.”

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