The telco giant is in the spotlight again
The post Telstra (ASX:TLS) share of Digicel acquisition must be a minority — CEO appeared first on The Motley Fool Australia. –
In early trading today, Telstra shares are swapping hands for $4 apiece, a gain of 0.88%.
Building on previous announcements, Telstra CEO Andy Penn added colour on the “incomplete” discussions in the telco giant’s FY21 results yesterday.
Let’s investigate further.
Bit of a refresher on the Digicel acquisition
The Australian federal government originally approached Telstra on 19 July, on the basis Telstra would “provide technical advice” on the acquisition of Digicel.
Telstra views the Pacific telco company, owned by an Irish billionaire, as “an attractive asset”.
As a result, speculative reports hint at a deal between the pair of approximately $2 billion to complete the transaction. The government’s portion is rumoured to be around $1.5 billion of that total.
Penn has stated in the past Telstra would only participate “as a minor portion of the transaction”, and that the government “has its own interests” in Digicel.
Digicel itself is a telecommunications company that owns the majority of 3G and 4G mobile networks across the Pacific.
The government seeks to purchase Digicel to compete with Chinese telecommunications infrastructure, which already has a strong presence in the region.
What’s the latest in the Digicel saga?
Penn has weighed in on the debate again, adding additional flavour on the transaction in Telstra’s FY21 earnings report.
According to Penn, the transaction will be contingent on “meet(ing) certain financial parameters”, in particular, Telstra’s stake “being the minor economic portion” in the deal.
Moreover, Penn stated ongoing discussions are still “incomplete” and there is doubt on the transaction going ahead in the first place.
Furthermore, the company “would own Digicel Pacific”, albeit maintaining a low-risk exposure “with appropriate risk projections”.
Should the deal close, Telstra would consolidate Digicel in its own financial results, as per the release.
Telstra will only go ahead with the acquisition “if it is in the best interests of (its) shareholders”, a point reinstated by both the CEO and chair.
In addition, the government is seeking to purchase Digicel to “block any Chinese transaction”, with “speculation the government has concerns over Chinese interests gaining a dominant position in pacific telco markets”, according to The Australian yesterday.
However, this posture has “led to concerns the government could overpay for the asset, as a result of a faux bidding war with China”, The Australian reports.
Telstra share price snapshot
The Telstra share price has posted a year-to-date return of 34%, extending the previous 12 month’s gain of 28%.
These results have outpaced the S&P/ASX 200 Index (ASX: XJO)’s climb of around 25% over the past year.
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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.