Shares in telecoms group KCom (KCOM) shot up by over a third on the news that it has agreed to be bought for £504m by the Universities Superannuation Scheme (USS), a major UK pension fund.
The recommended takeover offer, put forward by USS’s corporate trustee USSL, values each KCom share at 97p; a 34 per cent premium to the prior day’s closing price.
KCom is the leading telecoms provider in Hull, a city known for its quirky cream phone boxes. For USS – which boasts £64bn in assets under management – the acquisition “represents an attractive opportunity to become the owner of a well-established business with a strong local heritage”.
Major shareholders Teleios Capital and Invesco Asset Management, which hold a combined stake of around 25 per cent in KCom, have given irrevocable undertakings (binding agreements) to vote in favour of the deal – unless a rival offer emerges at a 10 per cent upgrade to USS’s acquisition price. Majedie Asset Management has also provided a non-binding letter of intent pertaining to its 3.3 per cent position in the company.
KCom’s shares plummeted last November, after it warned on full-year profits and cut the proposed annual dividend in half. While its Hull & East Yorkshire business – the largest contributor to cash profits – had continued to trade well, its enterprise segment saw lower-than-expected order intake and, thus, flat revenues. Moreover, the main problem lay with the national network services business (NNS), which faced continued customer churn. NNS’s performance drove management to impair the carrying value of its goodwill – resulting in a £32.2m exceptional item.
The strategic review that ensued will feed into the evaluation that USS undertakes with KCom’s management, once the acquisition – which is subject to shareholder approval – completes. Among other areas, this will focus on finding new investment opportunities to “drive profitable growth” within the Hull and East Yorkshire business – especially “the potential to offer new services and meaningfully expand and accelerate the fibre network build-out”. Hull already has the best level of fibre-to-the-premises penetration in the UK, “well ahead of the UK government's target of national rollout of fibre by 2033”.
