The Association of U S West Retirees



Telstra Sale Will Proceed, A$8B On Offer
Dow Jones Newswires
The Wall Street Journal
Friday, August 25, 2006

CANBERRA (Dow Jones) -- Australian Prime Minister John Howard confirmed Friday the government will proceed with the planned sale of its remaining stake in Telstra Corp. (TLS), offering A$8 billion worth of shares to investors.

Howard said the remainder of the government's 51.8% stake in Telstra, about A$14.5 billion worth of stock, will be transferred to the Future Fund, to be sold down over time.

"We are proceeding with this sale because we believe that we can achieve an appropriate return for taxpayers at this time," Howard said in a statement.

"Our sale advisers have been closely assessing market conditions and their unanimous advice to the government is that there is sufficient demand to support an offer of this magnitude and it can be done at a fair price."

Howard said the shares will be sold in October and November, with the final sale structure to be finalized prior to the launch.  The offer, to Australian and overseas retail and institutional investors, will include two installment receipts over 18 months.

The shares offered by the government will include the Telstra full-year dividend of 28 cents, Howard said.

Legislation allowing the government to sell its remaining 6.44 billion Telstra shares was passed by parliament September 2005 and cabinet was originally scheduled to give the sale a final go-ahead in the first quarter of this year.

But the decision was repeatedly postponed as Telstra's share price plummeted amid repeated clashes with the government and the regulator.

Telstra shares have slumped more than 30% since Chief Executive Solomon Trujillo, a former Chief of U.S. West, took over in July 2005, and are trading at less than half the A$7.40 a share Canberra sold its last tranche of shares at in 1999.

The share price plunge followed loud and frequent warnings from the company's management about the "value destroying" regulations imposed by the Australian Competition and Consumer Commission, which Telstra says could wipe hundreds of millions of dollars off revenues over coming years.

The government was believed to have sought an undertaking from Telstra's board that anti-regulator sniping would cease during any sale process.

Despite the government's request, Telstra's public policy chief Phil Burgess continued complaining about the regulatory regime until as late as Thursday.

Howard said Telstra Chairman Donald McGauchie had confirmed Burgess' latest anti-regulator comments didn't represent Telstra's position.

"Telstra's Chairman, board and senior management have assured the government of their strong commitment to this sale and their ongoing cooperation," Howard said.

"In particular, Telstra has made it clear that they will not use the sale process as a vehicle to campaign for changes to the regulatory regime."

The government had reserved the right to transfer some or all of its Telstra stake to its Future Fund, set up to meet future public service pension liabilities.

The opposition is against the Future Fund transfer proposition, saying it will create an ongoing overhang that will depress the share price.

The Australian government is being advised by UBS, Goldman Sachs JBWere, ABN AMRO Rothschild and Caliburn Partnership on the best way to offload its remaining Telstra shares.

"As with all public offers, a final decision to launch the offer remains subject to market conditions being conducive for a sale which achieves the government's sale objectives," Howard said.

Canberra began privatizing Telstra in 1997, when it sold one-third of its shares at A$3.30 each to retail investors and A$3.40 to institutional investors.  The first tranche of Telstra raised A$14 billion for the government.

A second tranche of Telstra shares, representing another 16.6% of the company, were sold in 1999 at A$7.40 to retail investors and A$7.80 to institutions to raise about A$16 billion.

The government has taken its promise to fully privatize Telstra to three elections but wasn't able to get parliamentary authority for the full sale until gaining control of the Senate last July.

Telstra shares closed flat at A$3.50 Friday after hitting a nine-year low of A$3.43 Tuesday.

"Selling Telstra continues to be good policy that is in the interests of existing Telstra shareholders, in the interests of the company and in the interests of the broader community," Howard said.

Telstra, Australia's largest telecommunications company, is fighting for local market share with global rivals such as Singapore Telecommunications Ltd. (T48.SG) and Vodafone PLC. (VOD).

-  By Barbara Adam, Dow Jones Newswires; 61-2-6208-0901;
-Edited by Graham Morgan