Predators moving in
Townsville TWO once- were mighty share market darlings are counting down to two very different terminations.
Shares in piranha legal group Slater & Gordon, which traded as high as $ 7 barely two years ago, are now allbut officially worth four- fifths of fiveeighths 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, appear 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’ two competing suitors are from the same super- greedy bottomfeeding 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 Street main- chancer) 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 bal- loon. 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 still have 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 just wanted to buy its Do- main real- estate advertising business.
Vocus shareholders will almost certainly get a reasonable and perhaps even reasonably attractive price for their shares. That’s not going to be the case at S& G.
The payment of $ 36.5 million to Maurice Blackburn – none of which actually comes from S& G itself – allbut locks in the scheme of arrangement, announced a couple of weeks ago, which will settle S& G’s future. As long as S& G’s “main assets” keep walking back into the office each morning – it can go back to its ( hopefully, profit- generating) ambulancechasing future.