Vocus takeover offers terminated

KKR and Affinity were 'unable to support a transaction on terms acceptable to the board', according to Vocus, as it forecasts revenue and EBITDA growth throughout FY18.
Written by Corinne Reichert, Contributor

Vocus Communications has announced that takeover proposals from Kohlberg Kravis Roberts & Co (KKR) and Affinity Equity Partners have been terminated following the telecommunications carrier announcing that it had missed its net profit guidance for FY17.

"Throughout the due diligence process, the bidders indicated support for management's strategic plans and transformation program," Vocus said in a statement to the Australian Securities Exchange (ASX) on Monday morning.

"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."

Vocus had last week announced that its unaudited underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) would be within its guidance of AU$365 million to AU$375 million, and its net debt position would also be in line with forecasts, at AU$1.092 billion.

However, underlying net profit would be AU$152.3 million below its guidance range of AU$160 million to AU$165 million "due to higher than forecast net finance costs and a higher effective tax rate".

According to Vocus, its board then decided to "conclude the sale process" due to the company's positive outlook for FY18, which forecasts revenue growth to between AU$1.9 billion and AU$2 billion and underlying EBITDA growth to between AU$370 million to AU$390 million.

"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 added.

Vocus is due to report its full FY17 financial results on Wednesday morning.

The company, which merged with M2 a year and a half ago to form the third-largest telecommunications provider in New Zealand and the fourth-largest in Australia worth more than AU$3 billion, had in June received KKR's initial takeover proposal to acquire 100 percent of its shares at a price of AU$3.50 per share via a scheme of arrangement.

Vocus then allowed KKR to conduct due diligence to explore whether a binding transaction could be agreed upon last month.

KKR had said its preliminary, indicative, and non-binding proposal would be subject to whether Vocus' net debt did not exceed AU$1.1 billion as of June 30; EBITDA was between AU$365 million to AU$375 million for FY16-17, and not driven by any abnormal or one-off items; and Vocus' existing asset base was maintained.

Affinity then submitted a takeover proposal in July to acquire 100 percent of Vocus' shares at a price of AU$3.50 per share via a scheme of arrangement to be paid in cash.

"The board of Vocus has concluded that, subject to negotiation of an appropriate confidentiality agreement, it is in the best interests of shareholders to also grant Affinity the opportunity to conduct due diligence on a non-exclusive basis in order to establish whether an acceptable binding transaction could be agreed," Vocus said at the time.

"The board of Vocus now considers that the interests of shareholders will be best served by a formal process to thoroughly evaluate whether a change of control offer, at a price and on terms that the board would recommend, can be secured."

The proposals followed Vocus revising its guidance for the 2017 financial year in May, 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.

CFO Mark Wratten had expressed confidence that Vocus would be able to hit its revised guidance for the 2017 financial year.

Vocus in February announced 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.

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