China kept at bay with Telstra buy

Feds in joint deal for Pacific telco

TELSTRA boss Andy Penn has insisted a $2.5bn move into the Pacific won’t derail his telco’s growth plans.

Mr Penn announced on Monday that Telstra had finalised a deal in partnership with the Australian government to buy Digicel’s Pacific operations for $US1.6bn ($2.14bn), plus an additional $US250m subject to business performance over the next three years.

Telstra will contribute $US270m in equity, with the federal government providing the remaining $US1.33bn, in an acquisition that has been widely viewed as a political move to block the rising regional influence of China.

Digicel, founded by Irish billionaire Denis O’Brien, is the largest mobile phone carrier in the Pacific and operates 3G and 4G networks across Papua New Guinea, Fiji, Samoa, Vanuatu and Tahiti with about 2.5 million subscribers.

Investors welcomed the news, sending shares in Telstra rallying 2.1 per cent to $3.81. Mr Penn was adamant that the deal would not distract from Telstra’s T22 or T25 growth strategies.

“We don’t propose and don’t feel we need to allocate a large number of senior executives from Telstra into this business, it is already very well run and will be run relatively independently,” he said on Monday.

There were fears that Chinese ownership of Digicel Pacific would give the Asian powerhouse an enhanced ability to intercept communications across the Pacific nations. Mr Penn said that his telco was initially approached by the Australian government to provide technical advice in relation to Digicel Pacific, and subsequently considered acquiring the business with financial and strategic risk management support from the government.

“We’ve been working on this for the last 10 months or so, something in that order, and it was initially in relation to strategic advice and that ultimately led us to thinking about a potential acquisition in partnership with government,” he said.

Mr Penn said the terms of the sale had now been agreed with completion expected to occur in the next three to six months, and that the transaction exceeds all Telstra merger and acquisition criteria.

“Digicel Pacific is a commercially attractive asset and critical to telecommunications in the region. The Australian government is strongly committed to supporting quality private sector investment infrastructure in the Pacific region,” he said.

Mr Penn described the discussions with the Australian government as ‘complex’ and said Covid restrictions had dragged out the timeline.

Digicel Pacific generated earnings before interest, taxation, depreciation and amortisation (EBITDA) of $US233m for the financial year ending March 31 2021.