That didn’t take long. In a matter of days, AGL has gone from being an enthusiastic buyer of Vocus to walking briskly out of the data room without a glance back.
AGL pushed the idea with vigour: energy and data were converging, they said, and the business had to adapt; the base business would be disrupted without an injection of technology and infrastructure suited to tomorrow.
If all that is still true, where does that leave AGL now that it has walked from the bid?
AGL’s claims contain truth. The legacy generation and retail business face a difficult future and management attention is needed. We agree on the problem but the case for such a radical solution was limp.
AGL might claim that it found something it didn’t like in Vocus and changed its mind. Our guess is that it was forced to repent by angry – and confused – shareholders. The business can hardly expect acceptance of a radical solution to a problem it has never really articulated. This is an embarrassing reversal for management.
It is tempting to sell AGL. Management has shown desperation, but they have at least shown restraint, too. Besides, the share price already reflects bad news. HOLD.
What of Vocus?
Four bidders have now made indicative bids for Vocus and, after mere days in Vocus’s data room, all four have run the other way. That doesn’t bode well.
On some level, we admit this piques our contrarian bent. Surely, no-one is looking at Vocus with anything other than disdain? Surely, universal revulsion can yield an opportunity? Yet we don’t see it.
We all know that this business has structural problems, with multiple systems running simultaneously and a huge integration task ahead. It is also poorly positioned strategically, with a redundant voice business, a struggling consumer business, and a low-margin reseller business.
The best part of Vocus remains its data centres and fibre infrastructure but the current price probably captures the value of these assets adequately. We ceased coverage on Vocus back in March. We see no reason to resume it now.