Telstra Corporation: Getting ready to split

About the author:

Nick Harris
Author name:
By Nick Harris
Job title:
Senior Analyst
Date posted:
22 March 2021, 11:15 AM
Sectors Covered:
Telecommunications, Technology and Financial Services

  • Telstra Corporation (ASX:TLS) promised, and delivered, a March 2021 update on the next steps with respect to its restructuring plans.
  • TLS will legally restructure into four operating businesses: 1) InfraCo Fixed; 2) InfraCo Towers; 3) ServeCo and 4) International; all by December 2021.
  • Existing Telstra will form the basis of InfraCo Fixed which will then transfer assets to the other subsidiaries by way of a scheme of arrangement. Shareholder approval will be sought at TLS’s October 2021 AGM.

The objective of the restructure

This legal restructure into four entities (from an earlier planned three) is designed to enable Telstra to “better realise the value of its infrastructure assets, take advantage of potential monetisation opportunities and create additional value for shareholders”.

InfraCo Fixed

Will own and operate Telstra’s passive or physical infrastructure assets: the ducts, fibre, data centres, and exchanges that underpin Telstra’s fixed telecommunications network.

It provides optionality to create additional value from these assets in the future.

InfraCo Towers

Will own and operate Telstra’s passive or physical mobile tower assets. Telstra is looking to monetise this asset and expects to receive a binding offer before the end of CY2021.

ServeCo

ServeCo is the customer facing segment of Telstra which is focused on product development, customer support, and improving the customer experience.

ServeCo will own active parts of the network including mobile spectrum and mobile Radio Access Networks.

Telstra International

This will include Telstra’s significant submarine cable networks which is one of the largest, predominately wholesale carriers on international data traffic, across Asia.

Investment view – Hold and PT retained

There are several issues still to be worked through including tax and stamp duty implications, international government approvals as required to move submarine cable assets into Telstra International, shareholder approval, regulatory approvals, debt/ rating agency feedback and more.

This will take time; however, progress is pleasingly being made. After first floating the idea around three years ago, management are now showing a clear commitment to progressing through these stages to help value realisation.

All going to plan TLS shareholders will own the same economic interest in the new holding company which owns the four subsidiaries mentioned above. For now, we make no changes to our forecasts or price target (login to view).

Further details will be released in a Scheme booklet in early September 2021.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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