Own TPG shares? Here’s what you stand to gain from the Vocus deal

ASX telco share TPG Telecom Ltd (ASX: TPG) hit the headlines yesterday after the company confirmed that it had received a preliminary offer from Vocus about a potential deal for its non-mobile fibre assets.

After a strategic review, it revealed that it had received a number of non-binding expressions of interest. During that process, Vocus made an indicative, highly conditional and non-binding offer for TPG’s fixed infrastructure assets for approximately $6.3 billion.

What could this do for TPG shares?

Yesterday, the TPG share price had climbed by 11% at the end of the day. It was up by around 7% before the shares were halted.

Investors aren’t necessarily expecting TPG to receive $6 billion and then pay a $6 billion dividend.

Reporting by The Australian highlighted analysis by the broker UBS which talked about what the company might do with the cash.

The broker suggested that the ASX telco share would use around $3.9 billion of it to pay down debt that’s on the balance sheet. A stronger balance sheet could be seen as positive for the TPG share price.

It also suggested that TPG will hold between $2.1 billion to $2.4 billion of cash to pay for lease liabilities and account for the transaction costs.

After doing some “back-of the-envelope” estimates, UBS’ analysis suggests that there could be net proceeds of $170 million to $470 million. This would represent 5 cents to 25 cents in per-share terms, which could be used to reward shareholders. That could be a grossed-up dividend yield of more than 6% if it reached the top end of that guidance.

What else could be a positive for the ASX telco share?

UBS also suggested that if a deal does go ahead, it may mean that TPG’s spending on capital expenditure is “slightly lower” than the current estimated $1 billion per year run-rate between now and FY26.

If an attractive transaction does go through, then UBS believes it will solve TPG’s balance sheet settings and mean that the business can be fully focused on the consumer and mobile earnings.

I’d also suggest that a large reduction of the debt pile could make the business seem a bit safer to some investors.

TPG share price snapshot

Despite the positive movement of the TPG share price this week, it’s still down more than 10% over the past year, as we can see on the chart below.