This morning home broadband and dark fibre business Vocus Group Ltd (ASX: VOC) revealed it has received a non-binding, indicative takeover proposal from EQT Infrastructure for $5.25 cash per share.
This is at a roughly 35% premium to Vocus's last exchange traded price of $3.89 per share and suggests EQT Infrastructure sees a lot of value in Vocus Group's enterprise-facing fibre optic assets and Australia Singapore Cable (ASC).
The $5.25 per share bid value Vocus around $3.3 billion based on 622.3 million shares on issue, but we mustn't forget Vocus has a net debt mountain around $1.1 billion as at its last reporting period to mean the offer values Vocus around $4.4 billion on an enterprise basis.
I expect the Vocus board and its shareholders are keen to get the deal over the line given its perilous leverage and consumer broadband business (mainly under the Dodo brand) hamstrung by the NBN's wrecking ball business model.
Back in June 2017 U.S.private equity group KKR made a $3.50 per share takeover offer for Vocus but pulled out of the deal for unexplained reasons, in a result that could now be a blessing in disguise for Vocus investors.
For full disclosure I must admit to selling out of my Vocus position at a net loss over the past 12 months or more, although I did originally invest in the original Vocus dark fibre and data centre business back in January 2013 at just $1.82 per share.
The general lesson for myself over Vocus is that mergers can be disastrous when a good quality business in Vocus merges with a low-quality business in M2 Group and in so doing creates a swag of debt and goodwill.
Another red flag to sell earlier was the decision of Vocus's founder and former CEO, James Spenceley, to sell all his shares in the group and quit the board not long after the merger was concluded.
Anyone still holding Vocus might hope for a takeover battle between EQT and another suitor, although that seems unlikely to me given the strength of EQT's initial offer.
EQT itself is a Europe-based private equity group that specialises in infrastructure assets, therefore it's plan for Vocus is likely to sell off the NBN consumer-facing businesses, before attempting to extract more value out of the dark fibre businesses including the ASC.
