Vocus and TPG can't agree

TPG Telecom has announced that the exclusivity period it granted to Vocus to carry out due diligence on the acquisition of its fibre business has now expired.

This does not mean the pair are scrapping the deal. Far from it; talks between them are still ongoing, TPG said. But presumably the way is now clear for TPG Telecom to hook up with other would-be buyers, should there be any out there.

Reading between the lines of a fairly snappy securities exchange announcement, the major stumbling block appears to be price, as is so often the case.

“As noted in our 1 August 2023 announcement, the consideration of $6.3 billion and the highly provisional indicative EBITDA perimeter of approximately $550 million are subject to change,” TPG Telecom said.

That’s not new information. As the telco itself points out, it made it quite clear that the financial terms of the deal were not set in stone when it confirmed the approach from Vocus last month, following media speculation on the matter. But if price were not a major factor in the due diligence process, why specifically mention it now? Or rather, why highlight it so strongly?

That’s possibly a bit of a reach, but either way, Vocus has failed to complete its due diligence in a timely fashion. Initially it had exclusivity until 6 September, but TPG extended that deadline, without passing comment on the whys and wherefores. There is no extension this time though, which could suggest TPG is getting a little impatient.

The firm has been engaged in reshaping its business for the past couple of years. It sold off the last of its passive infrastructure assets, including more than 1,200 mobile towers, in May 2022 and in September last year completed the reorganisation of its broadband networks, a process that resulted in the creation of Vision Network. A functionally separate wholesale entity, Vision Network comprises fibre-to-the-premises (FTTP), fibre-to-the-building (FTTB), fibre-to-the-node (FTTN), and hybrid fibre coaxial (HFC) networks, mainly in metropolitan areas.

TPG immediately set to work finding a buyer for Vision Network – or 70%-80% of it – with a price tag of A$1 billion in mind. Rival wholesaler Uniti Group was reportedly tempted, as was Vocus, and later there was talk of investor interest, but ultimately no deal materialised.

All of which serves to highlight that TPG has been looking for a network asset sale for some time, and has potentially been engaging with Vocus for much longer than the past couple of months.

The A$6.3 billion (US$4.2 billion) offer Vocus made in August included Vision Network, as well as other fixed infrastructure assets, plus certain enterprise, government and wholesale assets. Hence it’s a much bigger deal than the one being bandied about last year. But of course a deal of that breadth was bound to bring complexities, and therefore it’s hardly surprising that Vocus is taking its time with the due diligence.

A deal may still materialise, in which case we would likely see a new purchase price, or another buyer may come forward. Or TPG Telecom could find itself back at square one.

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