AGL AGL Energy Limited

   By Robb M. Stewart 
 

MELBOURNE, Australia--AGL Energy Ltd. (AGL.AU), one of Australia's biggest power utilities, is plotting a foray into telecoms with an about US$2.1 billion bid for Vocus Group Ltd. (VOC.AU).

The electricity generator and retailer revisited interest in Vocus after rival suitor EQT last week dropped a higher-priced offer, and has secured due diligence access to Vocus's books with a non-binding offer of 4.85 Australian dollars (US$3.38) a share. In late May, AGL said it had withdrawn an offer for Vocus after failing to agree due diligence terms.

Potential buyers have been circling Vocus in recent years, and the company has attracted private-equity interest that has each time failed to turn into a firm offer.

AGL, which has a market value of more than A$13.7 billion, said buying Vocus fit with its strategy of meeting the needs of increasingly connected customers as energy and data value-streams converge and the traditional energy sector transforms.

Vocus has built a telecommunications infrastructure platform across Australia and New Zealand, with networks in capital and regional cities. In Australia, its fiber network extends more than 14,000 miles, focused on a range of corporate, small business, government and residential customers.

AGL's offer was pitched at an almost 27% premium to the last closing price for Vocus's shares, but below the A$5.25 a share that Swedish asset manager EQT had offered before pulling out which had valued Vocus at US$2.26 billion. Vocus's shares have been trending higher over the last year, yet remain well below a peak above A$9.25 in mid-2016.

A takeover of Vocus would further shake up Australia's telecom industry, which has struggled in recent years with heightened competition and the ongoing rollout by the federal government of a nationwide broadband network that sells wholesale access to telecom operators. TPG Telecom Ltd. (TPM.AU) and Vodafone Hutchison Australia have proposed merging their respective fixed-line and mobile operations, but are seeking approval in court after the deal was earlier this month blocked by Australia's antitrust regulator.

AGL said that strategically acquiring Vocus was expected to bring customer loyalty and operating-cost benefits from integrating the two companies' customer platforms. It also offered an opportunity to accelerate what it said was Vocus's untapped growth potential in high-quality broadband fiber infrastructure, as well as an opportunity for AGL to absorb the telecom company's data-center operation.

Vocus's board has allowed AGL four weeks exclusive due diligence so it could prepare a binding offer. AGL said it was assessing funding, but intended to use existing cash and new debt facilities and anticipated a deal would bolster earnings per share in the first 12 months of securing Vocus.

Vocus Managing Director and Chief Executive Kevin Russell said the company was focused on executing a turnaround strategy, though the interest Vocus had received had presented a clear market opportunity.

Both companies said there was no certainty a firm offer would result from the discussions.

Last week, Sweden's EQT said it had decided to pull its takeover bid after gaining access to Vocus's books last month.

In late 2017, competing private equity firms KKR & Co. and Affinity Equity Partners ended talks with Vocus after finding they couldn't support a takeover offer on terms that were acceptable to the telecom company's board. The company had attracted an indicative offer from KKR months earlier worth about A$2.18 billion, and a month later Affinity made a bid at a matching price.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

June 10, 2019 19:52 ET (23:52 GMT)

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