Shares in struggling telco, Vocus Group soared 20% yesterday after US private equity group KKR has made a multi-billion dollars buyout proposal that is likely to trigger a bidding war.
KKR made a conditional $3.50 per share offer, valuing Vocus at $2.2 billion – it currently has a market capitalisation of $1.78 billion.
The shares soared 21.3% to $3.47, which values the company at $2.15 billion
The proposal is subject to KKR being satisfied with due diligence, availability of finance and the recommendation of Vocus’ board (i.e. a non-hostile bid).
It also assumes no dividends will be paid before the implementation of a scheme of arrangement, performance rights acquired or cancelled, Vocus has no less than a normal level of working capital upon completion of the deal, net debt does not rise above $1.1 billion by the end of this financial year, and full-year EBITDA comes in between $365 million and $375 million.
After expanding rapidly thanks to a series of acquisitions and seeing the shares run up to a high of $9.41 in 2016, a series of downgrades has brought the company back to the field with the share price falling 69% in the past year to Tuesday’s close.
Those acquisitions over the last two years – Vocus aid $1.2 billion for rival Amcom, $3.8 billion for a merger with M2 Group and $807 million for Nextgen.
It gave investors a reality check last month when it warned that the underlying net profit for the year to June would run at $160-165 million, well short of the $205-215 million guidance.
“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 yesterday.
Soon after the shares peaked in 2016, the company went to shareholders to raise funds at $7.55 a share to acquire Nextgen Networks. The buyers of those shares have seen their investments explode.
May’s warning saw the shares dumped, falling to long term lows of $2.35. Now investors are waiting for another bidder to emerge. Yesterday’s share trading failed to push the shares past the conditional price on offer of $3.55.
That’s because investors see the KKR offer as not being a ‘real’ bid, just a try on, much in the same way that TPG and Hellman and Friedman are kicking the tyres at Fairfax Media.
