The sweet and sour of Telstra doing the government’s geopolitical bidding

Eureka!

Given the government is stumping up the vast majority of the money needed to pay for Digicel, it’s a clear transfer of value from taxpayers to Telstra shareholders.

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Penn is pretty coy about how this extraordinary transaction came to pass. But he says the genesis was an approach from the government for technical advice around 10 months ago.

Having then become more familiar with the operations of Digicel, team Telstra was capable of seeing the upside, assessing the downside and understanding the size of the carrot the government was dangling.

Telstra’s has plenty of points in the favour-bank with the government – not a bad place to be in the closely regulated telecommunications industry. “We have very substantial relations with the government and they are important for us,” Penn said in an interview with this masthead.

Penn has warned investors to read little into the six ‘no exit’ clauses built into the agreement. Indeed, if Digicel keeps delivering there would be little incentive for Telstra to sell.

What Penn isn’t so vocal about is what an exit would look like if the acquisition doesn’t pan out as Telstra is hoping.

He isn’t prepared to comment on whether there is a list of companies, or more particularly, countries that Telstra could not sell to.

But this is not on the near term horizon for Telstra. Indeed, with all the safeguards built into the deal and with some potential for growth if COVID lifts, it’s a positive and more earnings per share accretive deal for shareholders than a buyback.

If there is a negative to the Digicel deal, from a shareholder perspective, it’s that it doesn’t really move the dial for a company the size of Telstra.

In an otherwise flat day on the market Telstra’s share price rose a handy 2.8 per cent.

Of course Telstra isn’t the only winner from this deal. First prize goes to O’Brien – a financially motivated seller who played geopolitics perfectly.

If people can get their heads around the fact that this is really a government deal hidden behind a Telstra mask, then it’s a win-win-win.