Vocus receives all cash takeover proposal from EQT Infrastructure

EQT offers AU$5.25 for shares that have traded below AU$4 for most of the year.
Written by Chris Duckett, Contributor on

Vocus is back in familiar terrain as the company has received an indicative proposal from Swedish private equity group EQT's infrastructure arm to acquire all shares in the company for AU$5.25 a share in cash.

Vocus has given EQT Infrastructure a number of weeks to put together a formal binding proposal, while EQT conducts non-exclusive due diligence. The success of the proposal will also rely on EQT securing financing and a unanimous recommendation from the Vocus board.

"The board notes that there is no certainty that this process or the indicative proposal will result in an offer for Vocus," the company said in a statement to the ASX.

Two years ago, Vocus was engaged with takeover proposals from Kohlberg Kravis Roberts & Co (KKR) and Affinity Equity Partners that resulted in nothing.

The termination of the potential takeover was announced a week later when Vocus disclosed it had missed its net profit guidance for FY17.

The proposals had offered to acquire Vocus at AU$3.50 a share.

"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," Vocus said in August 2017.

By February though, Vocus announced it was exiting the consumer segment of the National Broadband Network.

Vocus has said the variable nature of the CVC pricing model used by the NBN is incompatible with the fixed rates paid by consumers, and the economics do not stack up. The company added that NBN pricing was "simply too high", and it was cashflow negative after providing modems and backhaul.

Vocus also pointed to the multi-technology mix of the NBN, saying the resultant inconsistent experience was another pain point.

Consequently, the company said it would focus on selling NBN only where viable, and would shift towards fixed wireless and mobile solutions. Vocus pointed to non-NBN services being simpler with lower operating costs and 5G creating a path for business applications, as reasons for the switch.

In its half-year results announced at the same time, Vocus reported revenue as being up 1% to AU$974 million, while underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) was down 10% to AU$171 million, and statutory earnings before interest and tax was down a third to AU$50 million.

The worst performing group was its business division, which saw revenue drop 27% and EBITDA fall 30%, followed by its consumer division which experienced a 12% revenue drop and a 5% EBITDA fall. Headed in the other direction were its network and services and New Zealand groups, which reported a 27% jump in revenue and 5% revenue boost, respectively, as well as increases in EBITDA of 3% and 11%.

For the full year, the company said it would hit an EBITDA range of AU$350 million to AU$370 million. Vocus reported EBITDA of AU$366 million on revenue of AU$1.9 billion for the 2018 financial year.

In 2016, Vocus merged with M2 to create what was then the third-largest telecommunications provider in New Zealand and the fourth-largest in Australia worth over AU$3 billion.

EQT picked up European Linux distribution SUSE in July for $2.5 billion.

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