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Morningstar | Vocus' Data Fun House Spooks Another Suitor. See Updated Analyst Note from 16 Jun 2019

We restore our fair value estimate for Vocus to our previous AUD 3.00 per share on a stand-alone basis, prior to the recent takeover hysteria. The shock of a fourth bidder for the group withdrawing its interest will linger for some time. Indeed, it is unlikely Vocus' stock price premium to our stand-alone intrinsic assessment will ever reclaim even the 30%-heights before the recent Indicative Proposals were unveiled.

To begin with, Vocus' data room has lived up to the Kinder Surprise "fun house" moniker we had previously assigned. Exactly what is in those books that has repelled four interested suitors is likely to remain a mystery, at least until Vocus gradually unveils its financial results. However, AGL Energy's abrupt decision to terminate its AUD 4.85 Indicative Proposal, less than a week into a four-week exclusive due diligence period, will puncture the hope of those who were pricing in an earnings recovery much faster than what the fundamentals would warrant. We reiterate our view Vocus is in the early stages of a three-year turnaround journey, and maintain our five-year group EBITDA forecast CAGR of 6%.

Perhaps the rejection was only partly a result of the due diligence process on Vocus. Perhaps it was more in response to the negative market feedback AGL received since announcing its grandiose "data-energy" synergy play. We certainly made our view known on this issue in our prior research. Still, it raises question marks regarding the turnaround task facing newish CEO Kevin Russell (who began in May 2018), with four separate parties coming to the view that "it is too hard."

Management has a chance to demonstrate it is not "too hard," beginning with the investor strategy scheduled for July 3, 2019. However, any operational and financial disclosures on the day will be treated with wariness, given the effect they had on three private equity parties and one corporate entity over the past two years.