The Australian newspaper is reporting that private equity giant KKR is readying a new bid for home internet, data centre, and fibre-optic internet business Vocus Group Ltd (ASX: VOC).
According to the newspaper sources, KKR is sounding out financiers for the deal that will likely involve KKR taking on some debt in an attempt to raise funds for a bid that will total a minimum of $2.2 billion.
As it stands KKR and rival private equity operator Affinty Partners have bid an indicative $3.50 per Vocus share and been granted inside access to its accounts in order to assess the telco.
Both bids look opportunistic in my opinion as the market is likely undervaluing Vocus shares based on a horrible FY 2017 clouded by boardroom fights, staff departures, reporting problems, weak cash flows, and company upheaval that culminated in a big profit downgrade.
Huge short-term share price falls in reaction to profit downgrades, alongside heavy short selling of shares and weak sentiment can often leave the door open to overseas private equity groups looking to buy assets at fire sale prices.
As an example in January 2014 winemaker Treasury Wine Estates Ltd (ASX: TWE) announced a big profit downgrade that sent the stock and fund manager sentiment around it into a nosedive.
A couple of months later in May 2014, KKR bid $4.70 per share for Treasury, only to up its offer around 11% to $5.20 per share in August 2014.
The bids were rejected as opportunistic though by Treasury's visionary CEO and board, with the stock selling for $12.77 just 3 years later and enjoying a strong outlook thanks to its healthy fundamentals.
Vocus's board and shareholders then would almost certainly reap far greater rewards by rejecting the private equity offers to remember that the share market is a voting machine over the short term, but a weighing machine over the long term.
