FIN3CSF: Independent Board Committee: Financial Statement Analysis- Report Writing Assignment

Internal Code: TV616

Report Writing Assignment:

Task: Case Study-  Financial Statement Analysis and Security Valuation On June 7th 2017, Vocus Group Limited (ASX code: VOC) received an unsolicited proposal from Kohlberg Kravis Roberts & Co. (KKR) to acquire all of the issued capital in Vocus Group Limited for a cash offer price of $3.50 per share. On the day prior to the receipt of the merger proposal, the closing price of Vocus Group Limited shares was $2.86. The proposed acquisition is to be completed using a scheme of arrangement bid process if it is supported by the Board of Directors of Vocus Group Limited. The Board of Directors formed an Independent Board Committee (IBC), which held an initial meeting on the evening of June 7th 2017 to assess the acquisition approach from KKR and to determine a response strategy for the wider Board of Directors and communication to the company’s shareholders regarding the proposal. The indicative timetable was for the company to announce its response to the acquisition proposal from KKR to the market by August 21st 2017. Vocus Group Limited is an ASX-listed, vertically integrated telecommunications provider which operates in the Australian and New Zealand telecommunications markets. The company owns a national fibre infrastructure network connecting all capital cities and most regional cities across Australia and New Zealand, with its fibre communications network directly connecting to more than 5,500 buildings. Vocus Group Limited provides a portfolio of communications brands and products for corporate, small business, government and residential customers across Australia and New Zealand. The company also provides international internet protocol (IP) transit services, including submarine cable capacity connecting Australia to Singapore, New Zealand and the United States. It also operates data centres supporting the provision of its communication services. Kohlberg Kravis Roberts & Co. is a well-known unlisted private equity business which is based in the United States, but has undertaken various acquisition transactions and other investments involving listed and unlisted businesses in Australia. The company raises funds by issuing debentures and similar debt securities, and uses the proceeds raised for investment purposes, taking either minority or majority ownership stakes in businesses. The company then actively engages in the management and restructuring of businesses in which it invests and crystallises any value creation using investment exit strategies such as trade sales and sharemarket listings. Other relevant information relating to Vocus Group Limited or the wider corporate and share market sectors is: 1. The beta coefficient for Vocus Group Limited is 0.61, compared to the average beta coefficient for the telecommunications industry of 0.75. 2. The 10-year Australian Government Bond yield was 2.675% on June 30th 2017. 3. The S&P/ASX 200 Accumulation Index has provided an average annual return of 9.976% over the most recent 8-year period. 4. Consensus analyst forecasts for EBITDA and earnings per share (EPS) for the 2018 financial year are $300 million and $0.250 per share, respectively. 5. Long-term earnings (including residual earnings) and dividend growth forecasts for Vocus Group Limited are 4.00% and 5.00%, respectively. 6. The issued share capital for Vocus Group Limited at the end of 2018 financial year is expected to be 670 million shares. 7. Assume that the analysis is being undertaken on June 30th 2017.