Uniti Group ups the ante for OptiComm – and revises their bid to $5.85 per share
The team at Uniti Group must have been close to breaking out the champagne on another well executed transaction – detailed here – when the $130 billion First State Superannuation Fund threw a spanner in the works by bidding $5.85 per share or $610 million for OptiComm Limited.
On 8 September 2020, First State Superannuation lobbed in a conditional $5.85 bid for OptiComm Limited (ASX: OPC), a $0.65 per share or 12.5 per cent premium to Uniti Group’s (ASX: UWL) $5.20 bid. The Scheme Meeting, which was scheduled on 10 September to consummate the merger proposal between Uniti group and OptiComm, was postponed and the executives of both companies went back to the drawing board to reassess their position.
Given the combination of OptiComm and Uniti Group seemed compelling, the Board at Uniti Group were effectively forced to match the First State Superannuation offer, and revised their bid by increasing the consideration to $5.85, through a combination of $4.835 cash and 0.80537 Uniti Group share per OptiComm share, an additional cost of $68 million.
With the share price used by Uniti Group in the revised bidding process jumping from $1.26 to the current $1.45, this now values each OptiComm share at $6.00.
In addition to the revised bid, Uniti Group had secured 19.5 per cent of OptiComm through a combination of call option agreements and share purchase agreements and this will likely mean the end of First State Superannuation’s ambitions toward OptiComm. The OptiComm Board of Directors has recommended Uniti Group’s revised bid.
Whilst the Uniti Group shareholders will continue to own around 86 per cent of Mergeco, net debt will now jump to $183 million, or around 2.1X the pro-forma FY20 EBITDA of $88.4 million. Based on Mergeco’s 604 million shares on issue, the Company has a market capitalisation, at the current $1.45 per Uniti group share, of $876 million and an Enterprise value of $1,066 million.
The combination of OptiComm and Uniti Group enables the creation of a pre-eminent challenger in national private fibre networks with potential annualised revenue of $200 million producing EBITDA margins of 60 per cent. In terms of the revenue split, we forecast recurring network revenue accounting for 50 per cent; high quality services revenue accounting for 33 per cent and construction revenues accounting for 17 per cent.
Assuming various cost savings and synergistic benefits, we could see net debt decline to $135 million by the end of FY2022. If the merged Company does reach its EBITDA target of $120 million (Revenue of $200 million with margins of 60 per cent), then Uniti Group, at the current $1.45 per share, is priced on a prospective FY22 Enterprise Value/EBITDA multiple of around 8.5X.
While this appears reasonably cheap, the updated TIND policy may make investors a little cautious as the previously specified network deployment costs for NBN per home ($600) or unit ($400) are now maximum amounts that can be charged and NBN Co can charge less than this for the network infrastructure it provides to new developments.
The Montgomery Small Companies Fund and The Montgomery Fund own shares in Uniti Wireless. This article was prepared 15 September with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Uniti Wireless you should seek financial advice.