Web.com's revised bid lucks out to 5G Networks for Arq Group leftovers

Webcentral Group, the remnants of Arq Group that was formerly the company known as Melbourne IT, has decided to proceed with a takeover from 5G Networks (5GN).

In July, Siris Capital Group's Web.com offered Webcentral AU$0.10 per share, approximately AU$12 million, to wholly acquire what was left of the company.

5G Networks then raised its paddle, bidding AU$0.177 per share last week for a deal valued at around AU$21.6 million.

Web.com upped that offer on Tuesday to AU$0.155 per share, with the AU$18.9 million total to be paid in cash. On Thursday, Web.com revised its proposal to AU$0.18 per Webcentral share.

But opportunity trumped cash, with the board determining the 5GN proposal was superior to the one made by Web.com and as a result has entered into a bid implementation deed with 5GN.

"The Webcentral board has determined that neither the Web.com counterproposal nor the revised Web.com proposal … would provide an equivalent or superior outcome for Webcentral shareholders as a whole compared with the 5GN proposal," the company told shareholders on Thursday night.

Under the terms of the 5GN offer, Webcentral shareholders will be offered one 5GN share for every 12 Webcentral shares. Based on there being just over 122 million shares on issue, the sale price sits at around AU$19 million.

"The offer consideration represents approximately: AU$0.16 per Webcentral share, and implies an equity value of Webcentral of approximately AU$19.5 million based on the 30-day VWAP of 5GN shares to 16 September 2020 of AU$1.92 per 5GN share; and AU$0.153 per Webcentral share, and implies an equity value of Webcentral of approximately AU$18.7 million based on the 8-day (all trading days following 5GN's AU$27.5 million placement) VWAP of 5GN shares to 16 September 2020 of AU$1.83 per 5GN share," the implementation deed explained.

In justifying its decision to proceed with the 5GN offer, Webcentral said the company gives it a better shot at improving "after a period of underperformance and declining share price", as well as the ability to participate in any turnaround of the business.

"Unlike the Web.com Scheme, the 5GN offer provides Webcentral shareholders the opportunity to participate in a larger and more diversified business with potential benefits of scale, potential synergies, and greater liquidity," the company wrote.

The board said choosing 5GN also provides less completion risk, when compared to the Web.com offer.

"There would have been additional completion risk associated with the Web.com scheme which, given Webcentral's difficult financial situation, was an important consideration for the Webcentral directors," it said.

The 5GN offer is subject to a limited number of conditions, but it is not subject to any regulatory or shareholder approvals, financing, or due diligence.

Earlier this month, 5G Networks raised AU$30 million to potentially fund the purchase, and told shareholders it had already acquired a 10% stake in Webcentral and would not be voting in favour of the Web.com offer.

The company said it had previously completed "detailed due diligence" during Webcentral's recent strategic review, and would see AU$7 million in efficiency gains if both businesses were to be combined, which would help Webcentral's profitability.

"The 5G offer provides Webcentral shareholders with potential to participate in the significant turnaround opportunity presented by 5GN, where 5GN is proposing to use its expertise and asset base to add significant value," Webcentral chair Andrew Reitzer said on Thursday. "The combined group will offer a more appropriate leverage position and funding flexibility to support organic growth and possible future acquisition opportunities than what is presently available to Webcentral."

Arq Group sold its name in February, alongside the company's enterprise services division for a total of AU$35 million. The sale of its enterprise business left the company with only its SMB division, which was then known as Webcentral following the company's annual general meeting in May.

Proceeds of the sale were used to settle some of its debt, which the company had been attempting to reduce since it announced a review by Macquarie Capital to "explore all avenues for shareholder value creation" in September last year.

For the first half of 2020, the company recorded a net loss after tax of almost AU$129 million.

The company claimed underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) of just over AU$12 million from continuing operations for the six months to December 2019. However, reported EBITDA was a AU$31 million loss.

Revenue for the reported period was AU$83.6 million, down from the AU$100 million revenue generated a year prior.

At the time of writing, one Webcentral share was trading at AU$0.16 while one 5G Networks share was trading at AU$1.78.

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