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Telstra (ASX:TLS) share price up as government weighs in on Digicel saga

The government and telco giant look set to join forces in acquisition.
The post Telstra (ASX:TLS) share price up as government weighs in on Digicel saga appeared first on The Motley Fool Australia. –

The Telstra Corporation Ltd (ASX: TLS) share price has edged into the green this morning after more updates on the company’s Digicel Pacific acquisition.

Recall that telecommunications giant Digicel owns the major portion of 3G and 4G mobile networks across the Pacific. Its wide footprint in that region generated EBITDA of $235 million in 2020.

Digicel’s strategic location has made ownership of its assets a contentious issue for geopolitical reasons.

What’s the latest here?

The Australian federal government originally approached Telstra to “provide technical advice” regarding the purchase of Digicel Pacific, as per a release on 19 July.

As a result, a deal between both parties to buy Digicel for approximately $2 billion “is almost inevitable”, yesterday’s Australian Financial Review reports.

The government’s interest in the transaction is to lend a hand in protecting Digicel’s telco assets “because of concerns Beijing could use the networks to spy on political elites and neighbouring island nations”, according to the Financial Review.

Telstra CEO Andy Penn has since weighed in, stating the government has its “own interests” in Digicel.

However, the government will provide “significant debt financing” to Telstra by way of a loan, to fund the $2 billion acquisition.

According to Penn, Digicel is a “very attractive and successful business”. Telstra would “join with the government to make the purchase” if the decision aligned with the interests of shareholders.

Telstra also emphasised any progress would be with “financial and strategic risk management from the government”, implying that Telstra’s risk exposure would be low in the deal.

It also stressed that it would only participate as a “minor portion of the overall transaction” in its equity stake, amid other parameters.

Telstra shares are now $3.77, up by 0.27% in early morning trading.

Telstra share price snapshot

The Telstra share price has posted a return of 26% this year to date, extending the previous 12 month’s return of 8%.

This has lagged the S&P/ASX 200 Index (ASX: XJO)’s return of around 26% over the past year.

Telstra has a market capitalisation of almost $45 billion at the time of writing.

The post Telstra (ASX:TLS) share price up as government weighs in on Digicel saga appeared first on The Motley Fool Australia.

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