Vocus and TPG revive fibre deal talks

The Australian Financial Review (paywall) reported late on Sunday that the deal could be back on, prompting an official response from TPG.

"At the TPG Annual General Meeting on 3 May 2024, TPG confirmed previous statements that it would continue assessing value-optimising alternatives for its fixed infrastructure assets as part of a strategic review. Vocus Group and TPG have engaged in non-exclusive discussions as part of that strategic review process," TPG said.

Last August, Vocus and TPG entered exclusive talks over a deal worth A$6.3 billion ($4.1 billion). Had that one gone through, it would have seen TPG offload its enterprise, government and wholesale operations, including its infrastructure unit, Vision Network.

However, the clock ran out on the exclusivity agreement before they could get a deal over the line, and in November 2023, TPG and Vocus called time on their negotiations.

The official explanation from TPG was that the proposed transaction was too complicated and therefore neither side could find middle ground when it came to the operating model or the price.

"Securityholders should be aware that TPG's discussion with Vocus Group in 2023 did not lead to a transaction and there is no certainty a transaction will eventuate from the current discussions," TPG said.

Indeed, it's easy to forget that this is likely the third time that fibre operator Vocus – controlled by infrastructure investment funds Macquarie Infrastructure and Real Assets (MIRA), and Aware Super – has cast its eye over TPG's assets.

In late 2022, not long after TPG had folded its FTTP, fibre-to-the-building (FTTB), fibre-to-the-node (FTTN), and hybrid fibre coaxial (HFC) networks into Vision Network, it hired Bank of America to help it sound out potential buyers. Reports in January 2023 claimed Vocus – as well as wholesaler Uniti Group – had both shown interest.

There aren't any clear indications as to what might have changed since last November that has encouraged both sides to return to the negotiating table.

Not much has changed from TPG's point of view. In 2023, turnover at its enterprise, government and wholesale (EGW) business increased by a modest 1 percent. Vision Network reported flat revenue growth.

Furthermore, while TPG's interest costs almost doubled due to rising interest rates on its bank loans, it also carried out A$2.5 billion worth of refinancing last year, and no further refinancing is due until fiscal 2026. Operating free cash flow jumped 81.5% to $167 million on higher EBITDA and improvements in working capital.

In other words, TPG's assets are no more or less appealing, and TPG is not particularly desperate for money either.

So, unless Vocus has come up with a more compelling offer – or the revived deal has been simplified somehow – there's not a lot to suggest that the talks will bear fruit this time round.