TPG shares extend losses on Vocus deal as analysts see risks
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The news: Shares in TPG have extended losses for a second straight session after Australia’s third-biggest telecoms firm agreed to sell its fibre network infrastructure assets to Vocus Group.
The numbers: TPG shares were down 2.2% to $4.77 in early trading, on top of a more than 3% decline on Monday. Under the deal, TPG will sell the assets for an enterprise value of $5.25 billion.
The context: Morgan Stanley analysts kept their ‘underweight’ rating on TPG but trimmed their price target to $4.40 from $4.50 previously.
“The price is below expectations…proceeds will reduce balance sheet risk, but, the residual TPG assets are lower quality and lower growth, thus warranting a de-rate,” the analysts said in a note.
Jarden analysts said key risks to the completion of the transaction include an internal restructure, no material adverse changes in the businesses being sold, Foreign Investment Review Board approval, Australian Competition and Consumer Commission (ACCC) approval, and US regulatory approvals.
“On balance, we believe the biggest risk to any potential ACCC concerns being overcome is if the ACCC takes a narrow market definition,” Jarden said, retaining an ‘overweight’ rating and $5.25 price target on the stock.
Goldman Sachs also expects an improved balance sheet would provide TPG with greater flexibility to target market share gains. However, they flagged the likelihood that a meaningful capital return post completion would reduce the probability that TPG becomes a "debt free" aggressive competitor in the telecoms market.
They retain a ‘sell’ rating and a $4.40 price target.
The sources: Morgan Stanley research, Goldman Sachs research, Jarden research
