June 5, 2019 / 5:35 AM / in 21 days

Breakingviews - Thrice-ditched Aussie telco has its work cut out

A customer tries on a new iPhone 7 Plus in Australian's flagship Apple store in Sydney, September 16, 2016 as the iPhone 7 range goes on sale for the first time. REUTERS/Jason Reed

HONG KONG (Reuters Breakingviews) - Three dropped calls sends a bad message. Swedish buyout firm EQT Infrastructure has ditched its toppy $2.3 billion offer for Vocus Group barely a week after getting access to the Australian telecoms operator’s books. The news prompted a 20% fall in the company’s share price on Wednesday. It’s the third financial buyer to walk away in quick succession, and casts doubt on the target’s efforts to integrate multiple acquisitions. New boss Kevin Russell must now find a way to dial up confidence.

Sydney-based Vocus has built an impressive fibre optic cable network through a series of deals. A merger with M2 turned the company into Australia’s fourth-largest service provider. Buyers have been drawn to its stable cash flows and infrastructure critical to fifth-generation mobile data services, which would be expensive to build from scratch.

However, the enlarged entity has been plagued by problems: KKR and Affinity Equity Partners dropped separate, lower bids for the company in 2017 and there have been a string of top management changes. Vocus’ shares peaked at A$9.30 in May 2016 and now trade 60% lower following EQT’s aborted A$5.25 per share offer, which valued the company at a generous 12 times forward EBITDA.

It’s a red flag when three successive buyers enter a company’s data room and then each walk away without explanation. That puts pressure on Russell, an industry veteran following stints at rival Telstra and Hong Kong’s Hutchison Telecommunications, to quickly demonstrate progress in his three-year turnaround plan which aims to focus on the high-tech network over traditional internet services.  

For now, it is hard to see another bidder making a move at anything but a knock-down price. Vocus revealed last week that utilities giant AGL Energy had also made a non-binding offer to buy the company but couldn’t agree on due diligence terms. Either way, Russell would look foolish if he granted access to yet another sophisticated buyer and fails to seal a deal. The best way forward may be on its own. 

Breakingviews

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