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November 26, 2010, 12:19 AM EST
By Mark Lee and Robert Fenner
(Updates with comments from investor in fourth paragraph.)
Nov. 26 (Bloomberg) -- Telstra Corp., Australia’s biggest phone operator, plans to acquire companies and technology using the compensation it will get for giving up control of a copper- wire network that connects all the nation’s homes.
The A$11 billion ($10.7 billion) payment will help fund investments in wireless, entertainment and so-called cloud- computing services, Chief Executive Officer David Thodey said in an interview in Hong Kong yesterday. Australia’s Senate today approved the transfer of Telstra’s fixed-line grid to state-run NBN Co. to become the backbone for a national broadband network.
Telstra will retain its retail network as the government spends A$35.7 billion to bring a fiber-optic network to 93 percent of Australian homes in the nation’s largest infrastructure project. The Melbourne-based company may also use some of the proposed payout for share buybacks and dividends, Thodey said.
“Even small acquisitions can make the market nervous because they usually precede bigger deals,” said Theo Maas, who helps manage about $5 billion at Arnhem Investment Management in Sydney, including Telstra stock. “I would much rather see a return of capital to shareholders if they don’t need it for the capital expenditure going forward.”
Telstra has gained 8.8 percent this week as Prime Minister Julia Gillard won support from independent lawmakers for the structural separation and compensation. The stock fell 1 percent to A$2.85 at the 4:10 p.m. close in Sydney trading and has declined 17 percent this year, compared with the benchmark S&P/ASX 200 Index’s 5.6 percent drop.
Profit Pools
“Having the cash gives us the flexibility,” Thodey said. “We have got to create new revenue and profit pools in the business.”
Telstra hasn’t determined the portion of the NBN-related payout that it will allocate for investments, dividends and share buybacks, Thodey said.
The company will hand over assets to NBN, which will build the nationwide network by 2018. The operator will then join rivals including Singapore Telecommunications Ltd.’s Optus in leasing infrastructure from the government.
Gillard this week released part of the NBN’s corporate plan, boosted consumer protection under the planned network, and established a committee to oversee its rollout to woo independent Senators Steve Fielding and Nick Xenophon, who were earlier opposed to her move. The government already has the support of the Australian Greens party.
Parliament Sitting
Parliament in the capital Canberra extended its sitting to today as debate continued on the legislation to split Telstra’s businesses. Both houses of parliament are scheduled to debate the broader national broadband plan next year.
The expected A$11 billion payment to Telstra is also meant to offset revenue losses from its fixed-line operations. The amount will be distributed over 10 years and will be adjusted to reflect the so-called NPV, or net present value, Thodey said.
The compensation is subject to shareholder approval at a vote scheduled for next year.
Telstra said Nov. 19 its board is concerned about the company’s “undervalued” share price and intends to maintain a dividend payment of 28 Australian cents this year and next.
Thodey also plans to invest to expand in Asia. Telstra owns stakes in Chinese online businesses including Sequel Ltd. and Octave Investments, in addition to CSL New World Mobility Ltd., Hong Kong’s second-largest mobile-phone operator.
--Editors: Anand Krishnamoorthy, Lena Lee.
To contact the reporters on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net; Robert Fenner in Melbourne rfenner@bloomberg.net.
To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net.
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(Updates with comments from investor in fourth paragraph.)
Nov. 26 (Bloomberg) -- Telstra Corp., Australia’s biggest phone operator, plans to acquire companies and technology using the compensation it will get for giving up control of a copper- wire network that connects all the nation’s homes.
The A$11 billion ($10.7 billion) payment will help fund investments in wireless, entertainment and so-called cloud- computing services, Chief Executive Officer David Thodey said in an interview in Hong Kong yesterday. Australia’s Senate today approved the transfer of Telstra’s fixed-line grid to state-run NBN Co. to become the backbone for a national broadband network.
Telstra will retain its retail network as the government spends A$35.7 billion to bring a fiber-optic network to 93 percent of Australian homes in the nation’s largest infrastructure project. The Melbourne-based company may also use some of the proposed payout for share buybacks and dividends, Thodey said.
“Even small acquisitions can make the market nervous because they usually precede bigger deals,” said Theo Maas, who helps manage about $5 billion at Arnhem Investment Management in Sydney, including Telstra stock. “I would much rather see a return of capital to shareholders if they don’t need it for the capital expenditure going forward.”
Telstra has gained 8.8 percent this week as Prime Minister Julia Gillard won support from independent lawmakers for the structural separation and compensation. The stock fell 1 percent to A$2.85 at the 4:10 p.m. close in Sydney trading and has declined 17 percent this year, compared with the benchmark S&P/ASX 200 Index’s 5.6 percent drop.
Profit Pools
“Having the cash gives us the flexibility,” Thodey said. “We have got to create new revenue and profit pools in the business.”
Telstra hasn’t determined the portion of the NBN-related payout that it will allocate for investments, dividends and share buybacks, Thodey said.
The company will hand over assets to NBN, which will build the nationwide network by 2018. The operator will then join rivals including Singapore Telecommunications Ltd.’s Optus in leasing infrastructure from the government.
Gillard this week released part of the NBN’s corporate plan, boosted consumer protection under the planned network, and established a committee to oversee its rollout to woo independent Senators Steve Fielding and Nick Xenophon, who were earlier opposed to her move. The government already has the support of the Australian Greens party.
Parliament Sitting
Parliament in the capital Canberra extended its sitting to today as debate continued on the legislation to split Telstra’s businesses. Both houses of parliament are scheduled to debate the broader national broadband plan next year.
The expected A$11 billion payment to Telstra is also meant to offset revenue losses from its fixed-line operations. The amount will be distributed over 10 years and will be adjusted to reflect the so-called NPV, or net present value, Thodey said.
The compensation is subject to shareholder approval at a vote scheduled for next year.
Telstra said Nov. 19 its board is concerned about the company’s “undervalued” share price and intends to maintain a dividend payment of 28 Australian cents this year and next.
Thodey also plans to invest to expand in Asia. Telstra owns stakes in Chinese online businesses including Sequel Ltd. and Octave Investments, in addition to CSL New World Mobility Ltd., Hong Kong’s second-largest mobile-phone operator.
--Editors: Anand Krishnamoorthy, Lena Lee.
To contact the reporters on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net; Robert Fenner in Melbourne rfenner@bloomberg.net.
To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net.
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