Telstra (ASX:TLS) to acquire Digicel in partnership with the Australian Government

Telecom giant Telstra (ASX:TLS) has partnered with the Australian Government to acquire the Digicel business in the South Pacific for US$1.6 billion ($2.1 billion), plus up to an additional US$250 million subject to business performance over the next three years.

Telstra is contributing US$270 million of equity to the purchase price but will be the sole owner and operator, despite the Australian Government providing the remaining US$1.33 billion. CEO 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.

Digicel Pacific is a provider of communications services across Papua New Guinea (PNG), Fiji, Nauru, Samoa, Tonga and Vanuatu. According to Telstra, Digicel Pacific currently services 1,500 small to medium enterprises, 250 large enterprises and 200 corporates in PNG. The terms of the sale has 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,” Penn said.

“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.”

The transaction is subject to government and regulatory approvals and following Telstra’s corporate restructure, the Digicel Pacific investment will be held by Telstra International which will become a fourth subsidiary of the new Telstra holding company.

Shares in Telstra (ASX:TLS) are trading 1.3 per cent higher at $3.78.