SYDNEY, AUSTRALIA: Telstra partnered with the Australian Government to acquire the Digicel business in the South Pacific region for US$1.6 billion.
Moreover, an additional US$250 million to be paid subject to business performance over the next three years.
The Digicel business will be owned and operated by Telstra. Telstra is contributing US$270 million of equity to the US$1.6 billion purchase price and the Australian Government, through Export Finance Australia, is providing the remaining US$1.33 billion through a combination of non-recourse debt facilities and equity like securities.
Telstra will own 100 per cent of the ordinary equity.
Chief Executive Officer, Andrew Penn said Telstra 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.
Mr Penn said the partnership represented an important milestone in the company’s relationship with the Australian Government.
Mr Penn said the terms of the sale had now been agreed with completion expected to occur in the next 3-6 months.
“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.
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. 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,” said Mr Penn.
Mr Penn said the acquisition was attractive for a number of reasons including the economics of the Digicel Pacific business, alignment with Telstra’s core strengths as well as the support from the Australian Government.
“Digicel enjoys a strong market position in the South Pacific region holding a strong number one position in all markets other than Fiji where it is the number two.
The combined business generated EBITDA of US$233 million for the financial year ended 31 March 2021, with a strong margin.
Digicel Pacific has already invested significant capital in PNG, which is its largest market, to achieve extensive network coverage including 4G to 55 per cent of the population.
The medium to long-term capex to sales is expected to be around 15 per cent,” said Mr Penn.
The transaction is expected to delivean attractive IRR and exceeds all Telstra M&A criteria – EPS accretive, ROIC above WACC and more accretive than a share buyback. The transaction implies a multiple of 5.81-6.9x FY21 EBITDA for the acquisition of Digicel Pacific.
“Telstra provided guidance to the market for FY22 at its recent full year results presentation and it also provided aspirations for FY23. These did not include any allowance for the Digicel Pacific acquisition which will further enhance our outlook depending on the timing of completion,” said Mr Penn.
“The transaction does not distract from Telstra’s T22 or T25 strategies and represents a unique commercial opportunity. It is consistent with the Australian Government’s interest in encouraging quality investment in the Pacific, the financial arrangements make it very attractive for Telstra and it strengthens our relationships with the Australian Government and the Pacific region.
The Board unanimously believes the transaction is in the best interests of shareholders and it is on this basis that Telstra has agreed to proceed with the acquisition.”
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