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Why the Vocus share price is set to crash this morning

The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is likely to start the trading on the front foot thanks to solid gains on Wall Street overnight, but there’s one stock that’s unlikely to join the party.

I am referring to the Vocus Group Ltd (ASX: VOC) share price, which is likely to get pummelled after management announced on Tuesday night that Swedish based EQT Infrastructure was withdrawing its bid for the company.

Many investors may have missed the news as the announcement only went out at 6.50pm when most would have logged off.

Left at the alter

But you should still brace for a potential share sell-off given that the non-binding and conditional offer of $5.25 a share sent the stock soaring close to 20% last week.

It would seem that EQT got spooked after they had a chance to look under the bonnet. Vocus had granted them non-exclusive access to the company’s books so that the private equity raiders could undertake due diligence.

Vocus said that “discussions with EQT in relation to the Indicative Proposal has now ceased” and management is talking up the promising outlook for the embattled group in going at it alone.

Attention could be fall back to AGL Energy Limited (ASX: AGL) to see if the energy utility would make another play for Vocus.

Another suitor for the rebound?

AGL admitted it had contacted Vocus about a possible takeover but opted out of being in a love triangle when EQT crashed the party with what was considered a generous offer.

AGL couldn’t (or wouldn’t) match it but EQT’s decision to pack up and run leaves little doubt that Vocus isn’t worth $5.25 a pop – at least not right now. EQT’s failed bid has effectively put a cap on the valuation of Vocus – why else would EQT break off the engagement after having a quick peek into the inner chambers of Vocus?

I thought it was a little strange that AGL would think Vocus was a good synergistic fit, and it underscored how much AGL wanted to diversify away from the energy sector, which is still under heavy political pressure (and that’s unlikely to change anytime soon).

Another bidder apart from AGL could come along as there aren’t many groups like Vocus. The low and falling interest rate environment makes assets that can produce reasonably predictable and regular cashflows become more desirable in this environment.

The other merger and acquisition (M&A) saga that is worth keeping an eye on is TPG Telecom Ltd (ASX: TPM) as the federal court decision on its appeal to overturn the ACCC’s block on its marriage with Vodafone Australia is due in the coming weeks.

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Motley Fool contributor Brendon Lau owns shares of TPG Telecom Limited. 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 Scott Phillips.

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