The share price of beleaguered Vocus rose over 20% today but few shareholders will be cheering. The rise is a response to an indicative (not formal) $3.50 per share bid from private equity giant KKR, a 22% premium to the last price but still more than 60% below where shares were trading a mere 12 months ago.
Make no mistake: this bid is not a reflection of the attractiveness of Vocus, it is a damning finale to an ambitious strategy that didn’t work.
The idea was sound. Vocus owned attractive fibre assets and bought M2 and Amcom to integrate new customers onto that asset base.
Unlike TPG, however, which bought assets aggressively, integrated them, and bought more, Vocus tried to integrate four large businesses simultaneously. It looks as though the systems, software and people integration of the plan failed.
Vocus itself doesn’t appear to have a grasp of how profitable it can be, issuing several downgrades, and we threw our hands in the air back in November (see Vocus downgraded) after recommending selling earlier in 2016 (see Time to hang up on Vocus).
There is a path to better profitability – selling Vocus’s ancillary businesses and reclaiming the prime fibre business – but that was not the path management had chosen.
This bid could prompt others yet it doesn’t change our view of the business. We still can’t say with confidence how much money will come from Vocus and private equity bids are notoriously flakey. Our recommendation remains AVOID.