Really positive Veteran fund manager backs Telstras Digicel deal

Longstanding Telstra shareholder and veteran fund manager Anton Tagliaferro has given Telstra’s $2.1 billion, government-backed deal to acquire South Pacific mobile operator Digicel his endorsement despite lingering market concerns about the telco’s forays offshore.

Telstra this week sealed the purchase of Digicel from Irish billionaire Denis O’Brien, with the telco tipping in just $US270 million ($359 million), and government agencies providing the remaining $US1.33 billion amid speculation the asset could have fallen into Chinese ownership.

Investors Mutual's Anton Tagliaferro.Credit:Dominic Lorrimer

Mr Tagliaferro, whose funds management business Investors Mutual owns about 1 per cent of Telstra, said it was a positive deal even if it was small for the telco.

“The really positive thing is that it improves the relationship between Telstra and the federal government which is helpful given how regulated the telecommunications industry is,” he said. “Telstra made it clear from the outset that they wouldn’t do the deal unless it was accretive and made sense of shareholders. If it was a slightly accretive deal which harmed the relationship with government, I don’t think Telstra would’ve gone ahead.”

Market analysts largely welcomed an announcement, with shares in the telco rising 3 per cent on Tuesday to close at $3.92.

Credit Suisse upgraded its earnings forecasts. JP Morgan said the deal could contribute a 4 per cent lift in net profits after tax after 2023, while UBS analyst Tom Beadle said the transaction was positive and exceeded all of Telstra’s criteria for mergers and acquisitions.

However, Telstra’s track record with offshore investments is mixed and not all analysts support the deal. Morgan Stanley’s Andrew McLeod said it was “not a game changer” and was not an imperative acquisition.

“Strategically, we’d prefer Telstra to spend $300 million on its core Australian business rather than acquire a telco in the South Pacific,” Mr McLeod said.

When the proposed Digicel bid was announced in July, industry observers were convinced Telstra had struck some sort of trade-off with the government, potentially involving NBN Co’s privatisation or the legal restructure of its business. But others assured that Telstra would view this deal as a patriotic duty, a role the former government monopoly has tried to fulfil even after privatisation.

The agreement came after almost a year of talks and will ensure the infrastructure is kept out of Chinese hands. Digicel Pacific is based in Papua New Guinea and operates in six island countries.

“It gives Telstra more scale when dealing with telecommunications providers and puts Telstra in a good position to supply new telco products in the decades ahead in a growing part of the world,” Mr Tagliaferro said.

There is concern among some in the government and industry that the threat of the asset falling into Chinese hands was hyped up to drive up the sale price.

Industry and government sources confirmed that a Chinese company was never close to buying Digicel’s Pacific assets, but senior figures within the federal government believed Chinese companies such as China Mobile may have been interested.

Zoe Samios â€" Zoë Samios is a media and telecommunications reporter at The Sydney Morning Herald and The Age.Connect via Twitter or email.

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