Telstra to acquire Digicel Pacific for $1.6 billion with help from government

The deal is being called a 'political buy' to counter Chinese influence in the region

The Australian government and Telstra, the country’s biggest telco, are set to acquire telecoms company Digital Pacific for $1.6 billion (£1.15 billion) in what has been described as a “political buy” to counter Chinese influence in the region.

Telstra is contributing $270 million to the purchase with the Australian government providing the remaining $1.33 billion. Once the deal is complete, which is expected to occur in the next three to six months, the Digicel Pacific business will be overseen by a Telstra controlled board which will include the owner of the acquired company, Denis O’Brien.

The Australian telco 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, said Telstra CEO Andrew Penn. 

“The Australian government is strongly committed to supporting quality private sector investment infrastructure in the Pacific region,” said Penn. “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.”

Digicel was founded in 2006 and provides communication services across Papua New Guinea, Fiji, Nauru, Samoa, Tonga, and Vanuatu. It has around 2.5 million subscribers and 1,700 employees generating $431 million in service revenue for the financial year ended 31 March.

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There were reports last year, denied by Digicel, that the state-owned China Mobile was looking to buy the company, a deal that caused concern to the Australian government, according to the Australian Financial Review. The deal was said to be worth as much as $900 million and heightened tensions between Australia and China’s relationship following a week of trade disputes.

The deal has also been described as a “political buy” by Australian telecoms analyst Paul Budde, according to Reuters

“If the government had not asked and underwritten it, Telstra would not have done it,” said Budde. “Will Telstra be able to take over and run that business in an efficient way that makes money? It’s definitely possible but it will be a challenge.”

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