Vocus Communications has announced receiving a takeover proposal from Kohlberg Kravis Roberts & Co (KKR) to acquire 100 percent of its shares at a price of AU$3.50 per share via a scheme of arrangement.
The preliminary, indicative, and non-binding proposal by KKR is subject to whether Vocus' net debt does not exceed AU$1.1 billion as of June 30; earnings before interest, tax, depreciation, and amortisation (EBITDA) is between AU$365 million to AU$375 million for the current financial year, and was not driven by any abnormal or one-off items; and Vocus' existing asset base is maintained.
To look into the proposal, Vocus has formed an independent board committee (IBC), chaired by Vocus chair David Spence and comprised of Vocus' non-executive board directors Rhoda Phillippo, Craig Farrow, Robert Mansfield, and Jon Brett.
Should the board approve, the indicative proposal would also need shareholder, court, and regulatory approval.
"The Vocus board notes that there is no certainty the indicative proposal will result in an offer for Vocus, what the terms of any offer would be, or whether there will be a recommendation by the Vocus board," Vocus said in a statement on Wednesday morning to the Australian Securities Exchange.
"The Vocus board will update shareholders when the IBC has completed its assessment."
The proposal follows Vocus revising its guidance for the 2017 financial year last month, with revenue down by AU$100 million, underlying EBITDA down by between AU$65 million and AU$75 million, and net profit down by AU$45 million to AU$50 million. Vocus' net debt is expected to be between AU$1 billion and AU$1.1 billion.
Underlying EBITDA is now expected to be between AU$365 million and AU$375 million, net profit between AU$160 million and AU$165 million, and revenue at AU$1.8 billion, Vocus CEO Geoff Horth said.
The company attributed AU$10 million of the EBITDA reduction to the impact of lower than expected billings and an increased headcount across its Enterprise and Wholesale division; AU$5 million to low earnings in its mass market energy business due to "volatility created by extreme weather events in 3QFY17"; AU$12 million to higher expenses than expected, particularly on technology; AU$33 million to an accounting review of "the negotiated contract terms on a number of large projects"; and AU$10 million to other trading variances.
The drop in expected net profit is due to pre-tax expenses of AU$113 million, including AU$61 million from the non-cash amortisation of acquired customer intangibles; AU$26.4 million from the amortisation of acquired software; AU$21.4 million from acquisition and integration costs; and AU$5.6 million from the non-cash book loss on the divestment of the Connect 8 joint venture and the Cisco HCS voice platform.
Revenue will be lower than previously forecast thanks to a AU$12 million take-back from lower billings across its Enterprise and Wholesale division; AU$40 million as a result of the accounting review, as it was found that revenue from the projects involved would be earned in future periods; and AU$20 million from the divestment of the Aggregato Australia business and the Cisco HCS voice platform.
Vocus had in February announced a net profit of AU$47.2 million, up by almost 100 percent, due to its acquisitions of M2 and Nextgen. This mirrored Vocus' FY16 results showing a 223 percent rise in net profit, up to AU$64.1 million, attributed to its AU$1.2 billion acquisition of Amcom.
Statutory EBITDA for the first half of FY17 was AU$168.3 million, up from AU$60.7 million a year previous, while underlying EBITDA -- excluding acquisition, integration, and other costs -- was AU$187.2 million, up from AU$62.3 million. Vocus' underlying net profit was AU$91.85 million, up from AU$27.37 million.
Revenue for the first half of the financial year rose significantly, from AU$176.3 million up to AU$888.2 million.
Vocus merged with M2 last February to form the third-largest telecommunications provider in New Zealand and the fourth-largest in Australia worth more than AU$3 billion. It raised AU$652 million last July to acquire Nextgen Networks for AU$700 million, along with the North West Cable System for AU$134 million and the Australia Singapore Cable project for AU$27 million.