Telstra edges Optus with $2.1B tower sale

Telstra has stolen a march on rival Optus with the sale of 49% of its tower business to a local consortium.

The sale, led by sovereign wealth fund the Future Fund, was expected to take place through an industry auction later this year following the completion of Optus's own tower sell-off. But CEO Andy Penn says Telstra skipped the auction because the offer, which values the business at 28 times EBITDA, was at the higher end of expectations.

Figure 1: Game of towers: Selling tower infrastructure is the latest fundraising wheeze by operators. (Source: Pixabay)

He said the consortium, which had first approached Telstra earlier this year, had provided "a compelling rationale to progress the transaction ahead of schedule."

"We believe the value of the transaction; the high calibre consortium members and the terms of the agreement which protect Telstra’s network differentiation, support our decision to accelerate the process," Penn said in a statement. He said Telstra had sought a strategic partner that would maximize value for shareholders and allow the operator to retain control of the assets.

Towering gains

The bid values Telstra InfraCo Towers, a unit created in a restructure of the company in 2020, at A$5.9 billion ($4.43 billion).

Telstra said it would return net proceeds of around A$2.8 billion ($2.1 billion) to shareholders, sparking a rally in its stock on the ASX Wednesday. The stock closed up at A$3.76, up 4.44%. The transaction is expected to complete in Q3 2021.

Telstra InfraCo Towers is the country's biggest wireless masts business, with approximately 8,200 assets including 5,500 mobile towers. Marko Bogoievski, CEO of infrastructure asset management specialist Morrison & Co, who will manage the tower investment on the consortium's behalf, said the business should deliver consistent long-term returns as a result of strong data growth and rising demand. "We see future opportunities to develop both greenfield and in-situ assets, including 5G network deployments, to provide efficient and reliable access for all customers," he said. Telstra said it had concluded long-term service agreements with InfraCo Towers.

HR issues

The transaction may have sparked a legal battle with Optus over Telstra's hiring of a former Singtel mobile networks head Iskra Nikolova. Optus last week sought a court order to obtain documents from Nikolova and Telstra in an effort to protect its intellectual property, Australian Financial Review reports.

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Nikolova worked at Singtel, Optus's parent company, for four years and is now head of infrastructure and network at Telstra, according to AFR. Optus did not disclose what it believes the content of the documents to contain, or spell out what IP it believes had been taken. Neither Optus nor Telstra will comment.

Meanwhile, Optus is expected to issue a short list of around ten bidders for its auction as early as this weekend, The Australian reported. Among those expected to take part in the A$2 billion auction are Digital Colony, Phoenix Tower International and local tower operator Axicom.

Future Fund said it would drop out of the Optus bidding in the wake of the Telstra deal.

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— Robert Clark, contributing editor, special to Light Reading