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Why Vocus Communications Limited is set to compete with the big boys

The trading halt has been lifted on shares of Vocus Communications Limited (ASX: VOC) today after the telco successfully completed the institutional component of its entitlement offer.

The internet and data service business’s shares had been in a trading halt since the middle of last week after it announced the acquisition of Nextgen Networks for an upfront cost of $807 million and deferred consideration of up to $54 million.

In order to fund the acquisition, which is expected to generate value for investors, the company raised approximately $230 million from subscriptions for new ordinary shares in the business, issued at a price of $7.55 per share. That represents an 11.5% discount from today’s price of $8.53, with 97% of eligible institutional shareholders taking up the offer.

In a 1-for-8.9 renounceable entitlement offer, retail shareholders who were on the register at 4 July 2016 will also be able to participate in the raising for the same price ($7.55) as those institutional investors. This component will open on Thursday, 7 July 2016 before closing at 5:00pm on Monday, 18 July 2016.

Vocus believes that the acquisition will enable it to achieve $30 million in cost synergies per annum, while the acquisition is also tipped to be ‘high single digit’ earnings per share (EPS) accretive on a pro-forma basis for financial year 2017.

Of course, the company will need to receive the necessary approvals from the Australian Competition and Consumer Commission (ACCC) before it can proceed with the acquisition. But assuming it does receive the go-ahead, the acquisition could certainly help it to compete against the likes of TPG Telecom Ltd (ASX: TPM) and Telstra Corporation Ltd (ASX: TLS) in the long run.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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