Govt chips in $1.8B for Telstra's $2.1B Digicel Pacific buy

Andy Penn (Telstra)

The Australian government has chipped in US$1.33 billion (A$1.8 billion) to assist in Telstra's acquisition of telecommunications company Digicel Pacific for US$1.6 billion (A$2.1 billion) in total.

The deal sees Telstra contribute US$270 million (A$361 million) to the government’s contribution with the Australian telco to own 100 per cent of the ordinary equity and is expected to close by April at the latest.

Additionally, another US$250 million (A$335 million) is on offer, subject to business performance over the next three years.

Telstra CEO Andy Penn said the deal is “an important milestone in the company’s relationship with the Australian government” and follows discussions the telco had with the government dating back to at least July.

Those discussions, according to reports by media outlets The Age and The Sydney Morning Herald, allegedly involved the federal government approaching Australia’s largest telco and other businesses to gauge their interest taking a stake in Digicel’s Pacific operations after concerns emerged that it may be sold to a Chinese suitor.

The telco viewed the acquisition as attractive, as Penn claimed Digicel holds the top spot in all South Pacific regions, except in Fiji where it is ranked second, and currently has 1,700 employees and around 2.5 million subscribers.

“The transaction does not distract from Telstra’s T22 or T25 strategies and represents a unique commercial opportunity,” Penn said.

“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.”

Digicel will retain its brand and be held by Telstra International, one of the telco’s subsidiaries operating under the main holding company formed as part of its restructure plan it first announced back November 2020.

Meanwhile, the acquired telco is to be overseen by a Telstra-controlled board, which will include Digicel’s current owner, Denis O’Brien, as well as two independent directors.

“We understand the need to ensure this is a stand-alone business and that Telstra delivers on its commitments as part of the T22 and T25 strategies, as well as our intention to grow in coming years,” Penn added.