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Australia Sells A$15.5 Billion of Telstra Stock (Update1)
By Fergus Maguire
Nov. 19 (Bloomberg) -- Australia's government completed the world's second-biggest share sale this year, selling A$15.5 billion ($11.9 billion) in Telstra Corp. after luring investors with free stock and fat dividends.
The government sold 35 percent of the nation's biggest telephone company at A$3.70 a share, 5 cents less than Friday's close, Finance Minister Nick Minchin said in a statement today. Its remaining 17 percent stake will go to a state-run investment fund, which will hold the stock for at least six months.
Prime Minister John Howard retreated from plans to sell the government's entire 51.8 percent stake in Melbourne-based Telstra after a slump in earnings and a yearlong clash with management sent the shares to a record low in August. Inducements, including a dividend yield of 14 percent in the first year, attracted buyers, averting a threatened scrapping of the sale.
``The government will be very relieved,'' said Adrian Mulcahy, who helps manage $1.5 billion at Perennial Growth Management in Melbourne and bid for Telstra shares in the sale. ``The structure of the offer was very attractive.''
The sale ends the government's control of Telstra, nine years after it first sold stock, and removes its conflict as regulator and owner of the phone company.
To stoke demand for Telstra stock, which has slumped more than 50 percent since the last offering in 1999, the government allowed investors to pay for their shares in two installments.
Individuals will pay A$2 a share, a 10 cent discount to institutional investors, and A$1.60 in 18 months time. One bonus share for every 25 held will be paid for investors who hold the stock until the second installment is due.
`Big Dividend'
Investors who pay the first installment will be entitled to full dividend payments. Telstra has said it will pay a 28 cents- a-share dividend for the year ending June 30, 2007. It hasn't forecast dividends beyond then.
The dividend yield on the installment receipts, which will start trading at 11:30 a.m. tomorrow in Sydney, is more than three times the 4 percent average offered by Australia's 200 biggest companies, according to data compiled by Bloomberg.
``Investors are chasing that big dividend,'' said Tom Elliott, managing director of hedge fund MM&E Capital Ltd. in Melbourne, which manages $90 million. ``The outlook for the business itself isn't that great.''
The sale's chief arrangers were ABN Amro Holding NV, Goldman Sachs JBWere Pty, and UBS AG.
Earlier Offerings
The government sold 33 percent of Telstra in a A$14.2 billion initial public offering in 1997, and a further 16.6 percent for A$16 billion two years later.
The rest of the government's shares in Telstra will be placed in the Future Fund, an investment pool run to cover pension liabilities for politicians, defense workers and bureaucrats.
The shares will be placed in escrow for two years, after which they can be sold by the fund. An exception to the lockup will be allowed after six months if a ``cornerstone'' investor agrees to buy at least 3 percent of the company.
Telstra shares closed 2 cents lower to A$3.75 in Sydney on Friday. That's less than half the A$7.80 a share offered by the government in the 1999 sale.
Telstra Chief Executive Officer Sol Trujillo's cuts to profit forecasts, blamed on regulations, have soured government relations and pummeled investor confidence. The stock has fallen 25 percent since he was appointed in July last year.
Destroying Value
Trujillo has warned the company's value is being ``destroyed'' by rules giving rivals below-cost access to its network of copper wires and optic fiber linking the nation's homes and businesses.
Howard has returned fire, blaming Telstra's management for talking down the company's prospects, and said he won't be ``blackmailed'' into easing regulations. In July, Minchin warned the sale might not proceed because of the tensions.
The government ceding control is unlikely to end the feud.
Last week, the government used its majority holding to appoint Geoff Cousins, a former Howard adviser, to the board. Telstra objected, saying he may lack independence and investors raised concerns the government was seeking to rein in the company.
Telstra Chairman Donald McGauchie said he won't be silenced.
``A lot of the rules are designed quite specifically to advantage our competitors,'' he told shareholders at the company's annual meeting on Nov. 14 in Melbourne. ``We will resist very vigorously any further regulations.''
Behind the clash over regulations, competition and changing technology are undermining Telstra's earnings, which slumped 46 percent in the latest half.
Like other carriers such as Deutsche Telekom AG in Germany and Verizon Communications Inc. in the U.S., Telstra is suffering as customers shift from high-margin landline phones to low-margin wireless and Internet services.
The offer is the biggest Australian share sale for seven years and the second-largest worldwide this year after Industrial & Commercial Bank of China Ltd. sold $19.1 billion of stock in October.
The Telstra offer takes the value of global equity sales this year to about $464 billion, compared with $453.7 billion for the whole of 2005, according to Bloomberg.