Morningstar | EQT Infrastructure's Proposal for Vocus Seems Expensive
Vocus' extensive fibre infrastructure, which underpins its narrow economic moat, appears to have caught the eye of Swedish private equity group, EQT Infrastructure. EQT has made an indicative proposal to acquire Vocus for AUD 5.25 per share--a significant 35% premium to the last closing price of AUD 3.89, and a lofty 75% premium to our previous fair value estimate. We assign a 75% probability of the deal going through, and raise our fair value estimate to the probability-weighted average price of AUD 4.70. If the deal was to fall through, we would revert to our intrinsic value of the standalone business of AUD 3.00.The appeal of this Australian telecom resides in its moaty infrastructure. Indeed, Vocus' fibre network affords a material cost advantage over competitors, and the industry's efficient scale characteristics mean replicating this infrastructure would be uneconomical for new entrants. However, competitive intensity in fixed broadband remains elevated, especially in the consumer segment, where margins are squeezed amidst the National Broadband Network.
The proposal, yet to be recommended by the Vocus board, is by no means a done deal. It remains subject to several conditions--including due diligence, which Vocus expects to last several weeks. Shareholder approval will be required if the indicative proposal advances into an offer.
Vocus Group is a telecommunications provider, providing telecommunications and other services to customers across Australia and New Zealand.
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