The Australian Financial Review is reporting that analysts at JP Morgan think that it would make financial sense for Vodafone Hutchison Australia to join a potential bidding war for residential broadband, cloud, and underground fibre business Vocus Group Ltd (ASX: VOC).
Vodafone Hutchison Australia is jointly owned in a 50:50 joint venture between giant listed-telco Vodafone Group and Hutchinson Telecommunications.
According to JP Morgan's analysis this is a deal that would make a lot of sense, as it would lead to the combined companies saving up to "$175-$375m p.a. on our estimates" which could effectively create an additional "$1.4-$3.0" billion in value for the combined businesses.
However, as JP Morgan's analysts reportedly note, the deal would require the support of the board of the circa $100 billion Vodafone Group.
Vodafone Australia's mobile offering is now beginning to make ground on rivals such as Optus and Telstra Corporation Ltd (ASX: TLS) thanks to its low prices, improving network and a competitive advantage delivered by its parent company. Vodafone Australia for example now lets mobile subscribers enjoys practically unlimited internet surfing and mobile roaming for just $5 per day across 55 countries, which is something anyone who travels overseas semi-regularly is likely to benefit from.
Vocus also has several residential internet brands in Australia and New Zealand that would offer Vodafone Australia a potential shortcut into the market as an NBN reseller. Vocus's backhaul and fibre-optic network is also its most prized collection of assets and what it proving attractive to its multiple suitors currently.
The AFR is reporting that private equity groups may have been sounding out Vodafone Australia and its parent company to see whether there would be interest in teaming up for mega-deal that could conceivably involve the sale of Vodafone Australia and its subsequent merger with Vocus. This comes an no surprise if the private equity groups are concluding that $1.4 billion to $3 billion in value could be realised along the lines of JP Morgan's number crunchers.
Unfortunately, for Vocus shareholders this all sounds good on paper, but the reality is Vodafone Australia or its parent have yet to confirm any remote interest in a deal that looks a long shot.
Vocus is still being weighed up by overseas private equity groups KKR and Affinity Partners who have both offered an initial $3.50 per share for the business. The private equity groups' modus operandi if successful will likely involve a break up of the business given its recent merger and financial reporting problems.
Either way the interest in Vocus from multiple private equity buyers means the group is undervalued around $3.50 per share given its long-term potential in delivering telecommunication services across Australia, While if Vodafone were to signal its interest in a deal the Vocus share price is likely to go higher.
