Trading halt..., page-94

Similar sort of news to the AFR article from yesterday , but with the mention of TPG/Vodafone....

From the Australian...

Ailing telco Vocus may be in a tug of war between two private equity outfits but the prospect of an industry player, namely Vodafone Hutchison Australia, swooping continues to excite the market.

Kohlberg Kravis Roberts and Affinity Partners have so far gained access to Vocus’s data room but The Australian understands TPG Capital has been eyeing a potential tie-up with Vodafone to make a play for the telco.

Vodafone has so far vehemently denied any interest in Vocus but analysts yesterday advanced their cases for why a Vodafone-Vocus tie-up makes a lot of sense.

Ord Minnett analysts said the potential combination could deliver synergies of up to $3 billion and also deleverage Vodafone’s current balance sheet because of the lower leverage of Vocus.

“We believe there is significant synergy that could be realised in the combination, up to $175 million-$375m per annum on our estimates, which translates to $1.4bn-$3bn of value on an eight times enterprise value to operating earnings multiple,” Ord Minnett analysts said.

A Vodafone-Vocus marriage would create Australia’s third fully integrated telecom carrier with the ability to offer enterprise and wholesale services, and consumer fixed-broadband and mobile services.

“We assume Vodafone would take on Vocus’s current net debt of $1bn and each parent, Vodafone Group and CK Hutchison, which share a 50-50 stake and would contribute $1bn of additional debt funding at a 3 per cent interest cost,” Ord Minnett analysts said.

Having turned around its mobile business after the “Vodafail” debacle, Vodafone is finally looking to enter the fixed broadband market, with a focus on enterprise customers. The entry of TPG Telecom in the mobile market is likely to affect Vodafone; and with Telstra and Optus increasing their investment in the regional areas, Vodafone may see Vocus as a chance to become a full-service telco.

Based on a bid price of $3.50 a share, which translates into an enterprise value of $3.2bn, Ord Minnett analysts said the resulting combination could generate net profit for Vodafone for the first time in its history.

Vocus boss Geoff Horth has flagged a potential partnership with Vodafone as part of the telco’s recovery strategy, telling The Australian in June there was room for the two telcos to work together on the broadband market. “We see an opportunity to partner with them on a wholesale basis,” Mr Horth said.
“While there will be some cannibalisation in a retail sense, we can offer them NBN aggregation products.”
One key consideration is what the Australian Consumer & Competition Commission will have to say on the matter.

There is some speculation the competition regulator may not look favourably on a Vodafone-Vocus merger. However, Ord Minnett analysts do not expect trouble on that front.

“We would not expect it to increase or diminish competition as the two companies currently do not have any overlapping businesses,” they said.

The other big question is whether Vodafone’s joint owners would be keen to loosen the purse strings having already spent billions of dollars to resuscitate the mobile network.

Vodafone may not appreciate the takeover talk, but for the Vocus board the prospect of more suitors is exactly what it needs to deliver the best outcome for its loyal shareholders, especially as it gets ready to deliver some good full-year numbers on August 23.