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Fast-growing telco Uniti Group (ASX: UWL) is so determined to get its hands on OptiComm (ASX: OPC) that it will take on more debt and dilute shares to beat Australia's third-largest superannuation fund to the punch.
Earlier this week Aware Super - formerly known as First State Super - raised the stakes in the bidding war for fibre-to-the-premises (FTTP) network OptiComm with an 11 per cent premium to Uniti's previous offer.
Today OptiComm announced it had entered an amended deal with Uniti for an implied value of $6.67 per share, representing a 2.6 per cent premium to Aware Super's offer.
The amended scheme implementation deed (SID) effectively values OptiComm at close to $694 million, which isn't far off Uniti's market capitalisation of $726 million.
If the deal goes ahead, the Adelaide-based NBN challenger will own half of its service providers, having already acquired LBNCo and OPENetworks in the first half of FY20.
Comprising $5.20 cash and 1.07 UWL shares for every OPC share, if successful the new acquisition would mean a 17.5 per cent dilution for existing Uniti shareholders.
Also, an extra $40 million will be added to debt facilities which were already at $250 million, and Uniti expects to have $70 million in cash reserves after the deal is completed.
After three acquisitions in the first half of FY20 spurred substantial growth with a 477 per cent increase in gross margin to $44.4 million for the year, Uniti has had a lull in new business purchases for most of 2020.
The acquisitions of LBNCo, OPENetworks and 1300 Australia contributed significantly to earnings growth as the enlarged telco returned to profitability, but Uniti described much of the growth in the first six months of this calendar year as organic.
"FY20 has seen Uniti Group completely transform from a loss-making, fledgling start-up to a highly profitable, diversified and growing organisation, with the platform set for further marked expansion over the coming years," CEO Michael Simmons said in August, also noting earnings growth was achieved without any financial contributions from JobKeeper.
"This is evidence that we are building a business with highly defensive qualities, capable of making strategic acquisitions, integrating them effectively, and delivering forecast earnings accretion, enhanced by organic growth."
Simmons explained the company had sector-leading operating cash conversion, but that came with sustained growth-related capital investment including in long-term annuity FTTP assets.
The $100 million purchase of LBNCo was a major FTTP play for Uniti, but the push for asset growth via OptiComm is on a whole new level.
The acquisition is expected to be double-digit earnings accretive including $10 million in run-rate cost synergies, but the Federal Court still needs to approve an OptiComm scheme meeting on 22 October with that meeting due to take place on 6 November.
If shareholders vote in favour the scheme, and Uniti already owns a 6 per cent stake in OPC along with options for a further 13.5 per cent of shares, it will likely be implemented on 23 November.
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