Telstra acquires Digicel Pacific: Will telco’s shares rebound?

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Telstra acquires Digicel Pacific: Will telco’s shares rebound?

 Telstra acquires Digicel Pacific: Will telco’s shares rebound?
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Highlights

  • Telstra announced that it has partnered with the Australian government to acquire the South Pacific-based telco, Digicel for US$1.6 billion.
  • The telecom player and the Australian government have agreed to pay US$1.6 billion upfront and up to an additional US$250 million.
  • The completion of acquisition would occur in the next three to six months.

Shares of Telstra Corporation Ltd (ASX:TLS) will be in focus on Monday after the telco giant announced that it has partnered with the Australian government to acquire the South Pacific-based telco, Digicel  for US$1.6 billion (AU$2.1 billion).

According to the release, the telecom player and the Australian government have agreed to pay US$1.6 billion upfront and up to an additional US$250 million.

While the Digicel business will be owned and operated by Telstra, it will only be contributing US$270 million of equity to the US$1.6 billion purchase price.

Telstra acquires Digicel Pacific: Will telco’s shares rebound?

The Australian government, via Export Finance Australia, would provide the remaining US$1.33 billion. Telstra will own 100% of the ordinary equity.

Meanwhile, the terms of the sale have been agreed to, with completion expected to occur in the next three to six months.

What Telstra’s management said

Commenting on the development, Chief executive Andrew Penn said Digicel Pacific was 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. We previously said that if Telstra were to proceed with a transaction it would be with financial and strategic risk management support from the government,” Penn said.

“We also said that in addition to a government funding and support package, any investment would also have to be within certain financial parameters with Telstra’s equity investment being the minor portion of the overall transaction. I am pleased that we have been able to achieve both of those outcomes,” he added.

How Telstra shares performed last week

Telstra shares have given a year-to-date (YTD) return of nearly 24%. In the past year, the company returned over 34% to shareholders.

 Telstra started the week last Monday at a share price of AU$3.85. The stock closed at AU$3.73 a share on Friday. It means the ASX 200-listed telco went backwards by over 2% over the week.

The weakness in share price can be attributed to two major triggers last week. The first was the results of a report on Australian internet speeds by Ookla that said Telstra’s broadband internet was, on average, slower than most of its rival telco providers.

The second was a rumour that Aussie Broadband, a rival to Telstra in the telco space, is in talks to purchase the IT telecommunications provider Over The Wire Holdings.

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