Vocus in the crosshairs of private equity
A better day for Aussie stocks with early weakness being bought, particularly in the banks which enjoyed a tentative bounce. As we suggested yesterday, the -80pt sell off yesterday as broadbased however the banks only accounted for -20 index points implying that aggression in bank selling was starting to ease, and most of the pain had already been dealt. That theme started to play out today and we saw good turnarounds across the board – ANZ the best of them adding $0.18 or 0.66%.
On the broader market today, the telco sector led the way while most weakness was felt in consumer staples which lost –1.55% - an overall range of +/- 40 points, a high of 5683 and a low of 5643, ending the day unchanged at 5667.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
The big corporate news was clearly the private equity bid for Vocus (VOC) at $3.50 a share, a +22% premium to the last traded price and that obviously saw some strength in the stock – which closed up by 21.68% to $3.48. KKR is the private equity bidder and rumours of a potential deal have been circulating for a while, however the main issue that was cited as a mitigating factor was around whether or not VOC would meet their earnings guidance. It was clearly a risky play given one more downgrade and the company would likely breach lending covenants, and most likely to be forced to raise equity – obviously from very depressed levels. Now a bid has been formalised the questions is whether or not a competing suitor will step up?
James Spenceley was the kingpin that started VOC and grew it spectacularly, before selling stock around $8 and stepping down following a number of big acquisitions and loss of control to M2 Management – a smart move in hindsight and now with the stock around $3 he was once again being discussed as a potential acquirer with the help of others. Spenceley however was vocal today in saying he’s been a buyer of stock on market in recent times which restricts him from leading / or being involved in any potential competing bid. RRG is being discussed in some circles as having some interest but nothing confirmed as yet.
Clearly there is some concern from the suitor KKR around VOC earnings given the bid is conditional upon the company meeting earnings guidance whilst maintaining net debt below $1.1bn (currently $1.04bn). We also know that industry players have little regard for Geoff Horth, the current CEO, and whatever the outcome he’s unlikely to be there long (in our view).
Whatever the case, VOC is clearly in play, however the price is likely to be a big disappointment for many holders. That said, the Board will need to take this offer seriously and do all they can to entice a competing bid – it’s the least they can do for long suffering shareholders. At this stage, we will sit and watch from the sidelines. We do not own VOC
Vocus (VOC) Weekly Chart
Have a great night
The Market Matters Team
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