The battle within Vocus

The battle within Vocus

What's making acquirers think twice?

Disclosing acquisition offers to the market is nothing new, but in a majority of these cases, they usually eventuate into something thereafter. 

The past few weeks saw the tussle for Vocus take shape, with Swedish private equity group, EQT Infrastructure showing its interest in the telco through its $3.26 billion offer on 27 May, and AGL revealing four days later that it was also interested in the telco. 

One week on, EQT pulled back and AGL discussions seemed to take a further step after they declared $3 billion price for the telco.

Once again, that offer was swiftly pulled off the table one week later, with AGL citing it was ‘no longer confident of the value’ in the proposed acquisition. 

At the time, AGL managing director and CEO, Brett Redman, stated his hope in creating new opportunities for AGL, as energy and data value streams converge, and that the approach to Vocus reflected its view that the Vocus asset base had attributes that could support the execution of this strategy.

“However, we are no longer confident that an acquisition of Vocus at the proposed terms would represent sufficient certainty of creating value for AGL shareholders,” Redman said. 

Tech Research Asia executive analyst Mark Iles said the rationale for the acquisitions was fairly well understood, and the bundling of energy and telco services has happened in other markets such as New Zealand with TrustPower, which has now turned into a major broadband provider.  

“In the case of Vocus specifically I would have thought that the MVNO agreement they have with Optus would also have been seen as a major asset as it would allow them [AGL] to also enter the mobile space,” Iles said. 

“It’s difficult to know why they walked away, both parties have done so in the early days of due diligence which is unusual as there is a lot of analysis done before any initial non-binding offer is made, so it seems there is something that’s not adding up when they lift the covers to what they were expecting.”

In April last year, Vocus also halted the sale process of its New Zealand business, claiming that the offers it had received from potential buyers did not reflect the value of its assets in the country.

The acquisition situation two years ago followed a similar line where in July 2017, Vocus found itself at the centre of a bidding war after the company received an acquisition proposal from Asian private equity firm, Affinity Equity Partners.

This followed Kohlberg Kravis Roberts & Co (KKR) plans to acquire the telco a month before, with the US-based private equity firm tabling a $2.1 billion buyout proposal. But both never came to fruition.

According to telco industry analyst Paul Budde, Vocus has had its fair share of problems for years now, partly because of the integration of different acquisitions, and partly because of management conflict. Vocus' string of acquisitions throughout the years included Nextgen Networks in 2016 and M2 Group in 2015.

“They now have two distinct sets of acquisitions. One-part infrastructure and one-part retail. It is very difficult to create a company around all of that,” Budde said. “In particular the retail business is very challenging with fierce competition and high NBN wholesale prices.

“As soon as a company seriously looks under the bonnet, they will see this myriad of issues and as we saw they walk away very quickly without even proper due diligence. This is the key problem Vocus is facing.”

On Vocus’ front, it has been vocal about its three-year strategic business turnaround plans, something that potential acquirers would have taken notice of, but how much work Vocus needs to do to get beyond the due diligence phase, is another matter for the books. 

In January last year, the telco detailed how it will separate its business units into four operating segments including enterprise and government; wholesale and international; consumer and New Zealand.

Vocus CEO, Kevin Russell has previously said that any turnaround was always about leadership change, capability and mindset. He previously admitted there had been some ‘missteps’ and that it hadn’t executed well enough on market opportunities.

“We have great confidence that our strategy and ability to execute our business plan will deliver significant value to our shareholders in the medium to long term. There is growing demand for our strategically valuable network assets and we have a substantial opportunity for Vocus Networks to gain market share. This is the core of our business,” Russell said. 

“The Vocus management team will now be able to focus all of their attention on realising the opportunity that we have ahead of us.”

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