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Australian telco Vocus entertains US$2.3b offer from Sweden's EQT

[SYDNEY]  Australian telecoms junior Vocus Group Ltd on Monday said it received a A$3.3 billion (S$3.16 billion) buyout offer from Swedish private-equity firm EQT Infrastructure, just as the firm's fibre-focused turnaround plan begins to gain traction.

The non-binding offer sent Vocus shares soaring by a quarter and vaulting over where they traded in 2017 when US buyout firm KKR & Co Inc and Affinity Equity Partners made, then abandoned, their own plays for the struggling telco.

EQT made a cash offer of A$5.25, Vocus said. That was a 35 per cent premium to Friday's closing price and A$1.1 billion bigger than KKR and Affinity's separate but matching bids, underscoring confidence in the telco's path away from discount retailing into network building.

"It's a great price," said independent telecoms analyst Paul Budde. "Vocus has been struggling a bit for the last couple of years (but) the assets that they have are definitely worthwhile."

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"(The bid) is not necessarily for the business or the customers that they have ... but that infrastructure is always something that is worthwhile and they have got quite a lot of it."

Vocus, in a stock exchange filing, said its board has allowed EQT to conduct non-exclusive due diligence. It gave no view on the offer.

EQT was not immediately available for comment.

Shares of the telco jumped as much as 26 percent after the announcement, hitting a two-and-a-half-year high before drifting lower to A$4.59 - still well below the offer price, suggesting a degree of doubt about whether a deal will materialise.

The broader market was flat.

FIBRE FUTURE

Sydney-based Vocus, Australia's fourth-largest internet provider, fell into a downward spiral in 2017 and 2018, cutting and missing profit forecasts as its retail businesses battled falling profit margins and increasingly stiff competition.

The same forces are driving competitors TPG Telecom Ltd and the local arm of Britain's Vodafone Group PLC to pursue a A$15 billion merger.

Both KKR and Affinity dropped their approaches for Vocus, without explanation, four days after Vocus issued a third profit warning in nine months back in August 2017.

Since then, Vocus has shifted focus to network infrastructure, owning and developing fibre-optic cables in Australia, New Zealand and the Pacific. Under the strategy, revenue in the division grew by almost a third over the six months to Dec. 31.

"Where the retail market is still very tough, trying to fight against the big guys, that infrastructure-based commercial business seems to have a few different dynamics," said Jason Beddow, chief executive officer of A$5.3 billion fund manager Argo Investments Ltd and a shareholder of Vocus.

EQT, which is backed by Sweden's industrialist Wallenberg family, has mostly focused in Europe and North America. In 2014, it bought Australian medical diagnostics firm I-Med, selling out in 2018 for A$1.25 billion.

Beddow said it was too early to comment on EQT's Vocus proposal because it was not binding. Vocus said it expects the due diligence process to take weeks and that a formal, binding, bid may follow.

REUTERS