Telstra seals Pacnet deal for $US697m
Source: Greg Roberts
Telstra has announced it will buy Asian telecommunications group Pacnet for $A754.12 million.
Telstra has dramatically increased its presence in Asia with a long awaited major acquisition.
Australia's largest telco will buy Pacnet, a telco and owner of the world's largest private submarine cable network, for $US697 million ($A754.12 million).
The move will double the size of its presence in Asia, said global enterprise and services group executive Brendon Riley.
The price was below previous speculation Telstra could pay $US1 billion.
Pacnet's equity value was $US2 billion in 2008.
Telstra chief financial officer Andrew Penn acknowledged that Pacnet's performance had declined during that time, but had returned to growth in the last two-and-a-half years since chief executive Carl Grivner took over.
"Through that process they refocused the business, which also accounts for a little bit of a reduction in the size of the business," he said.
Mr Grivner has previously called on large foreign telcos such as Telstra to properly commit to and build infrastructure in Asia, rather than just rely on partnerships with local providers.
Last year Telstra teamed up with Indonesian telco Telkom to sell technology services in the region but Tuesday's announcement is its biggest deal.
Telstra will acquire more than 46,400km of undersea cable stretching from Asia to the US and join its Chinese joint venture, PBS, the first time a foreign company has provided an Internet Protocol Virtual Private Network there.
It believes its experience as a global leader in rolling out 4G mobile communications technology positions it well in what are still relatively young Asian markets, Mr Penn said.
The acquisition was aligned to Telstra's growth strategy in Asia and a significant step in expanding beyond Australia, Telstra chief executive David Thodey said.
"We believe this acquisition will help us become a leading provider of enterprise services to multinational companies and carriers in the region," he said.
Telstra's shares closed down four cents at $5.96 after closing $6 on Monday for the first time in more than 13 years.
CMC Markets chief market strategist Michael McCarthy said it looked like a positive for Telstra.
There had been concerns it might take an ill disciplined approach given past failures in Asia and how keen it was on expanding in the region, he said.
The company experienced major financial problems with its Reach joint venture cable business formed in 2000.
"It gets capital working for the company, which is an important aspect from a shareholder's point of view," Mr McCarthy told AAP.
Telstra has $5 billion-plus in cash.
The transaction would target $65 million a year in synergies and was more value accretive than a share buyback, Telstra said.
Pacnet's revenues in 2013 were $US472 million with earnings before interest, tax, depreciation and amortisation $US111 million.
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