???Vocus Communications, the nation's third largest telecommunications company, is officially off the shelf after its private equity suitors walked away.
In a move that triggered a 22 per cent in the Vocus shareprice, the company announced on Monday morning it had terminated talks with private equity firms Kohlberg Kravis Roberts (KKR) and Affinity Partners, both of which were offering $3.50 a share for a full takeover.
"Throughout the due diligence process, the bidders indicated support for management's strategic plans and transformation program," Vocus told the market on Monday.
"However, the bidders have now advised that they are unable to support a transaction on terms acceptable to the board. Accordingly, all discussions have now ceased."
Shares closed at $3.22 on Friday afternoon and dropped to $2.43 on opening, a decline of 22.3 per cent. Shares recovered to $2.69 by lunch time, still a 16.5 per cent decline on the previous close.
Last week Vocus revealed it will incur a non-cash goodwill impairment of $1.53 billion in 2016-17 across both the Australian and New Zealand businesses and its unaudited profit will miss guidance at $152.3 million, below the $160 million to $165 million range given earlier this year.
Unaudited underlying earnings are expected to hit the lower end of the guidance target of between $365 million and $375 million at $366.4 million.
The impairment was found after using "a higher discount rate, lower terminal value growth rate and lower [earnings] estimates in the company's impairment testing," according to Deutsche Bank's telco analyst Craig Wong Pan.
"Based on the company's announcement we have impaired goodwill, increased our net interest expense forecasts, reduced our 2016-17 underlying EBITDA to $366 million and reduced our underlying net profit after tax to $152 million," Mr Wong Pan wrote in a note to clients last week.
"This has led to underlying earnings per share reductions of 5 per cent to 6 per cent between FY17-FY21. Our target price is set at the private equity offer price of $3.50/share for VOC."
By terminating the takeover talks the board removed the $3.50 price floor, hence the large decline on Monday.
Vocus' full-year results will be out on Wednesday morning. Along with terminating the takeover talks, the Vocus board forecast revenue growth in 2017-18 to between $1.9 billion and $2 billion, with underlying EBITDA growth to between $370 million and $390 million.
"Notwithstanding the competitive market conditions, and the increased costs associated with the migration of customers to the NBN, the board is confident that the company can deliver a return to sustainable organic growth following a year of transition in FY17."
