Vocus Communications has announced that after reviewing the indicative proposal for a takeover from Kohlberg Kravis Roberts & Co (KKR), it has decided to allow KKR to conduct due diligence to explore whether a binding transaction could be agreed upon.
According to Vocus, in the context of its strategic plans, a non-exclusive due diligence performed by KKR would be "in the best interests of shareholders".
"The Vocus board believes that the management of Vocus has established a strong strategic plan which will deliver value for shareholders both in the short and medium term," Vocus chair David Spence said in a statement to the Australian Securities Exchange (ASX).
"While we are confident that the management team can deliver on the strategic plan, we believe it is in the best interests of shareholders to grant KKR due diligence to explore whether a potential whole-of-company proposal is available that takes into account the benefits that the plan delivers."
The indicative proposal is subject to the due diligence being completed by KKR, in addition to the availability of financing; unanimous recommendation by Vocus' board; entry into a definitive scheme implementation agreement; approval by an independent expert that the takeover would be in shareholders' best interests; approval by Vocus shareholders; court approval; and Foreign Investment Review Board (FIRB) approval.
Vocus had announced receiving the takeover proposal a month ago, with KKR proposing to acquire 100 percent of its shares at a price of AU$3.50 per share via a scheme of arrangement.
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; earnings before interest, tax, depreciation, and amortisation (EBITDA) were 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.
To look into the proposal, Vocus formed an independent board committee (IBC) chaired by Spence and comprised of Vocus' non-executive board directors Rhoda Phillippo, Craig Farrow, Robert Mansfield, and Jon Brett, which Vocus CEO Geoff Horth last month said was "very appropriate in the circumstances".
The proposal 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.
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, Horth said.
CFO Mark Wratten last month expressed confidence that Vocus would be able to hit its revised guidance for the 2017 financial year.
Vocus had 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.
As of last month, Vocus has a 30,000km fibre network spanning Australia and New Zealand, including the Australia Singapore Cable (ASC) and North West Cable System (NWCS) purchased for AU$27 million and AU$134 million, respectively, during its AU$700 million acquisition of Nextgen Networks last year; more than 5,500 buildings and 70 datacentres on net; and a portfolio of 23 owned datacentres.
In regards to becoming a bigger player in the mobile market, Horth argued that TPG's entrance as Australia's fourth mobile provider has provided "more of an opportunity for us to have new conversations on whether to enter the market".
"The mobile opportunity is a pretty big one, and we'll push pretty hard throughout FY18," Scott Carter, Vocus head of Mass Markets, said.
Carter announced that iPrimus is being rebranded and relaunched to provide mobile, entertainment, and broadband services, with a view to playing "very, very hard" in the National Broadband Network (NBN) space.