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Australia Aims Telstra Sale at Small Investors
Bonus-Shares Program, Ad Campaign Inaugurate Frequently Delayed Offering
By Lyndal McFarland
The Wall Street Journal
Tuesday, October 10, 2006

SYDNEY, Australia -- After months of delays and bickering, the Australian government launched its prospectus to sell $8 billion Australian dollars (US$5.94 billion) of Telstra Corp. shares, with a marketing campaign aimed at local small investors.

Advised by three global investment banks, Canberra will offer at least 2.15 billion shares in the telecommunications company, in what will be one of the world's largest stock sales this year.

Known as T3 by bankers, the sale of one-third of the government's remaining stake includes a bonus-share offer and is targeting small investors who are well out of the money if they held onto shares bought seven years ago.  Canberra last sold Telstra shares in 1999 at A$7.40 each, or US$5.50 at current exchange levels.

Existing shareholders will be entitled to one new share for every two they hold, taking them to the front of the queue amid speculation there will be a muted response from large international funds.  Small, or "retail," investors also will receive one free share in 18 months for every 25 new shares.  Canberra will spend A$20 million on an advertising campaign over the next few weeks.

Shares will be payable in two installments -- the first next month -- giving investors three dividends before paying the final amount 18 months later.  This will boost the yield on the new shares to as high as 14%.  Retail investors initially will pay A$2 a share, while institutional investors will pay A$2.10.

"It seems there is going to be quite a bit of stock for retail investors," said Matt Williams, who helps manage A$20 billion in funds at Perpetual Investments in Sydney.  "T3 has the makings of being a solid, but probably not spectacular, investment," said Mr. Williams, who holds Telstra shares.

T3 is the culmination of a 10-year ambition by Prime Minister John Howard to remove Canberra from Telstra's share register, ending the conflict between acting as regulator and equity owner.

But the path to the sale has been far from easy, with Mr. Howard last year hoping to sell Canberra's 6.44 billion Telstra shares rather than having to park two-thirds in an investment fund with links to the government.  Feuding with Telstra management over regulations, along with tough competition from rivals such as Singapore Telecommunications Ltd. and a sliding share price, has forced Canberra to constantly revise plans to sell its 51.8% stake.

Telstra shares have shed 26% since Solomon Trujillo, an outspoken U.S. telecom veteran, took over as chief executive in July 2005.  Shares in Telstra fell 2.4% yesterday in Sydney to A$3.74 each.

With a global sales-coordination panel consisting of UBS, ABN Amro Rothschild and Goldman Sachs JBWere, Canberra also will target big international investors.  International investors hold about 14.9% of Telstra's shares, with the prospectus allowing a maximum level of 35%.

The new shares will be listed on the Australian Stock Exchange Nov. 20.

Write to Lyndal McFarland at