Telstra chief Andy Penn reiterates government has to do the heavy lifting on any Digicel deal
Telstra chief executive Andy Penn is adamant Australia’s biggest telco will only pay a minority share in any deal for potential takeover target Digicel Pacific.
Telstra chief executive Andy Penn says potential takeover target Digicel Pacific is a “commercially attractive asset’’, but is adamant Australia’s biggest telco will only pay a minority share in any deal.
In mid-July, Telstra confirmed it was in talks to buy Digicel Pacific from Irish billionaire Denis O’Brien, with a “significant” funding contribution from the federal government part of the possible deal.
The deal has been rumoured to have a price tag of as much as $2bn, with the government’s contribution as much as $1.5bn.
There has been wide speculation that the deal is designed to block any possible Chinese bid for the company, which has a dominant position in the Papua New Guinea market and other markets across the Pacific.
Mr Penn said during Telstra’s full-year results briefing on Thursday that the company was committed to being a minority contributor to any deal, while also saying Digicel was an attractive asset.
“The discussions are incomplete and it’s not certain that the transaction will proceed,’’ Mr Penn said.
“Given the nature of these transactions I’m not able to say more at this stage, other than to confirm any transaction will have to meet certain financial parameters.
“Those financial parameters include Telstra’s financial investment being the minor economic proportion of the overall transaction, with all other capital being sourced on a non-recourse basis.
“Telstra would own Digicel, with appropriate risk protections, and consolidate it in our financial results.
“Digicel Pacific is a commercially attractive asset, it enjoys a strong market position in the South Pacific region, it generated an EBITDA of $US235m in calendar 2020, with a strong margin, and it has an extensive telecommunications network.
“But also let me strongly reiterate the comments you’ve heard from the chair, which is that we will only proceed with a transaction if it is in the interests of our shareholders.’’
READ MORE: The backstory on Telstra takeover target Digicel
Mr Penn said on Thursday there was a “Team Australia” element to the potential Digicel transaction.
“The government asked us to assist in relation to consideration of it and we were happy to do that,’’ he said.
“There needs to be certain protection and financial support put in place but ultimately we’re ‘Team Australia’ and if we can find a way to support and help the government, and matched to that also to be in the interests of shareholders, we have a very strong relationship and obviously many points of engagement and interdependency with the government, then we would do so.
“But ordinarily it wouldn’t have been on our strategic agenda.’’
Telstra chairman John Mullen said last month that the deal had to stack up for investors.
“Obviously I’m pretty limited as to what I can say but what I can say is that Telstra will not be making any investment that doesn’t make sense for its shareholders and deliver adequate financial returns,’’ Mr Mullen said.
“That’s not just a platitude, it’s an absolute fact. We will not enter into any transaction that isn’t financially accretive.
“That said, can you help your sovereign government in current times, particularly if you’re a critical infrastructure provider? Of course you can. The key is to try and find a balance between the two.’’
Sources told The Australian when the news of the deal broke that it was unambiguously political, with one saying, “It’s the government’s hand and Telstra is the glove here’’.
While there is speculation the government has concerns over Chinese interests gaining a dominant position in pacific telco markets, others argue China’s espionage networks and even physical infrastructure are already well established in the region, and they would still have the ability to compete for market share alongside Digicel.
That has led to concerns the federal government could overpay for the asset, as a result of a faux bidding war with China.
While talking up Digicel’s financial performance, Telstra has admitted it would likely not have looked at the deal without the prompting of the government, which brought the deal to the company.
“Telstra was initially approached by the Australian government to provide technical advice in relation to Digicel Pacific which is a commercially attractive asset and critical to telecommunications in the region,’’ the company said last month.
“If Telstra were to proceed with a transaction it would be with financial and strategic risk management support from the Government.’’
Mr Mullen also admitted the Digicel deal probably would not have been on Telstra’s radar without the government’s intervention.
“Or, it would have come across our desk, like so many other things, but would it have been something one would have gone further in discussion with if there wasn’t a government interest? Probably not,’’ he said.
“But if something does come of this it will be because we can meet both government expectations and financial returns for the company. If we can’t do both of those then it can’t happen.”
Digicel Pacific operates across Papua New Guinea, Fiji, Nauru, Samoa, Tonga and Vanuatu, and according to a US Securities and Exchange Commission filing last year, at that time commanded as much as a 91 per cent share of PNG’s mobile phone market.
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