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Telstra To Go Ahead With New Holding Company, Splitting Business Into 4 Entities

Max Molinari

Max is an Equity Analyst with ASR Wealth Advisers. He has studied a Bachelor of Business and a Bachelor of Laws at the University of Technology, Sydney. Max currently holds RG146 qualifications.

Telecommunications giant Telstra (ASX: TLS) has officially announced today that it is moving ahead with its proposed restructure, under the T22 plan, which was first announced last November. Telstra Corporation will be split into four different entities comprising of InfraCo Fixed, InfraCo Towers, ServeCo and Telstra International, with Telstra International being a recent addition, which is comprised of its international business lines and subsea cables. InfraCo is seen as the direct continuation of the current Telstra Corporation.

 

Picture17Source: The Examiner

 

These restructuring changes, which are the biggest since its privatisation back in 1997, are contingent on shareholder approval, to be voted on in October and expected to be completed by the end of the calendar year. With the splitting of businesses, it is explained that shares will be held of a like to like basis with no changes in ownership structure.

 

Telstra CEO Andy Penn had explained the purpose of the restructuring is realising the benefits of transparency and creating separate valuations, which allows for a lot of flexibility and optionality, taking advantage of compelling valuations of telecommunications assets and current big changes in the industry.

 

“The new structure has been chosen as it delivers a modern, optimal long-term portfolio structure for the Telstra group of businesses, which will maximise flexibility and value realisation of our assets” he said.

 

By splitting InfraCo into Fixed and Towers, Penn has flagged the likely sale of InfraCo Towers to take advantage of these strong valuations, which has a current market value in the range of $4.5 billion to $5 billion, which if sold, will create significant shareholder value, fulfilling a key pillar of the T22 plan which is realising more value from its infrastructure assets. This will allow the new Telstra Group to focus more on the assets which have more foreseeable growth in the future in InfraCo Fixed including data centres and fibre, and build upon its customer facing line in ServiceCo.

 

These moves also come in a time where Telstra is looking down the line of the privatisation of the NBN in the next few years, where this optionality will be crucial in taking advantage of these potential gains. With the NBN finally recording positive EBITDA, as forced payments to Telstra and Optus to pay for subscribers who migrated off Telstra’s fixed line network (and Optus to a lesser extent), combined with the drastic fall in capital expenditure as network build completes, allowing the self funding of value improvements to the business.

 

A merged InfraCo and NBN will allow for the internalising of subscriber migration payments and thus eliminating it, and allows for full control of NBN infrastructure. This would be the key optionality this restructuring plan will allow for, with these synergies having the capability to create a lot of value for shareholders. Most importantly, the company of Telstra would not be allowed to own or have shareholder influence on this merger, but its shareholders can. This would be a very attractive proposal for shareholders and is something to keep a tab on.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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