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Takeover: Is KKR’s offer for Vocus Group Ltd shares rubbish?

On Wednesday, private equity firm, KKR, offered a takeover price of $3.50 for Vocus Group Ltd (ASX: VOC) shares.

The KKR offer is non-binding, indicative and preliminary, which essentially means that absolutely nothing is guaranteed to come from the offer. Any deal would also be subject to a number of conditions, such as no dividends being paid, no reduction in the company’s profit guidance and no increases in debt.

That’s like saying, “Hey, I MIGHT buy your business IF I think it is good.”

Yeah, nah.

In addition, the Vocus deal appears to be highly opportunistic given the recent poor performance in the Vocus Group share price.

Vocus Group Share Price

VOC share price

Source: Google Finance

As can be seen in the chart above, for around four of the past five years Vocus shares have significantly outperformed the broader market, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

However, as I noted last week and the week before that, the core Vocus business would be highly valuable to the right buyer and the company has longer term potential, albeit a higher risk.

Foolish Takeaway

KKR’s offer appears highly opportunistic given the offer price, in my opinion. What’s more, it appears highly speculative given the list of conditions.

Most investors perceive takeovers as vindication that they have done something good.

As a result, analysts and investors rate themselves highly. They believe that it makes them savvy businessmen or women because they ‘got the business right’. But if you truly are a long-term investor, takeovers are often bad for your wealth.

After all, do you think KKR is offering to buy your Vocus shares because they want to save you losing money? Uh, no.

Remember, you make money from holding shares. Not buying shares — and certainly not by selling them.

Having said that, I’ll be very concerned if the Vocus board accept this offer.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia owns shares of Vocus Communications Limited. 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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