Vocus ends well but S&G heads for ambulance

TWO once-were mighty share market darlings are counting down to two very different terminations.

Shares in piranha legal group Slater and Gordon – which traded as high as $7 barely two years ago – are now all-but officially worth four-fifths of five-eighths of very little after the settlement of its incoming ambulance-chasing legal action from fellow piranha Maurice Blackburn.

In contrast, shares in new-age telco group Vocus – which traded up to $9 in the fullest flush of investor enthusiasm just a year ago – appears to at least have a not-quite-as-official base value of $3.50.

The reason that $3.50 is nearly official is that Vocus is no Fairfax. The reason that the $3.50 is still only nearly certain (but as a minimum) is that Vocus’s two competing suitors are from the same super-greedy bottom-feeding breed that pursued – and abandoned – Fairfax.

No Fairfax? Well, Vocus has now received two competing – what are always described as “preliminary, indicative and non-binding” – proposals from (the original Wall St mainchancer) KKR and a group called Affinity Equity Partners.

Both have nominated $3.50 as the “price” to get to look deep inside Vocus.

But there’s a very good chance that having “looked” at least one of them will come back and formally offer that price, or something quite close to it.

And if both come back, you could get a bit of a bidding duel. But it’s self-evidently not going to get anywhere remotely near that $9; indeed it would take a miracle of suddenly discovered hidden value inside Vocus for the bidding to get anywhere near even half that figure.

Two things temper the price someone like KKR and Affinity might offer for Vocus. The share price of even a year ago was vastly inflated by the “Vocus meme” of one of the dynamic second-tier telcos on the make behind the lumbering big three of Telstra, Optus and Vodafone. The air has gone out of that balloon. And secondly, KKR and its peers are greedy. They never pay generous prices. Yes, most of their upside will come from gearing their acquisition, but they’ve still got to get the basic assets at a good price.

Two of these groups unveiled similar proposals for Fairfax, but after looking “inside” not just one but both walked away.

The broad reason was that Fairfax failed “the acquisition test” detailed above for Vocus. But because of a big difference: neither of the two suitors wanted to buy the actual 160-year old Fairfax media business.

Both wanted to buy just its Domain real-estate advertising business.

Their analysis was focused on calculating how much they would lose on the actual media business, how much it would cost to eventually close it down, and how all that red ink would offset what they could make on Domain. And at the end of that analysis they said “No thanks”.

Vocus is very different. Both suitors want to buy the actual Vocus business. Yes, they might end up assessing different bits of it positively and negatively, broadly similar to Fairfax.

But at the end of that there will still be a relatively up-and-down decision on the price at which they can make that work on what I would term their “greed metrics”, in the broader telco context within a global economic context.

Of course, you couldn’t rule out either or both saying “No thanks” at $3.50. But the more likely outcome is that at least one confirms that price or indeed we get a– I would assess, a “moderate” – bidding duel.

The big driver is the macro reason for this explosion of interest by these Wall St mainchancers in seemingly anything that looks at least prospective Down Under – and that’s the multi-trillions of dollars looking for something, almost anything, to buy in a low-interest rate world.