According to The Sydney Morning Herald news, Telstra will acquire Asian-based telecommunications provider Pacnet for US$697 million (AU$857 million). The deal includes Pacnet's data centres throughout the region, including China, the EAC-C2C undersea cable system, the EAC-Pacific undersea cable system (which consists of two dedicated fiber pairs of the Unity undersea cable system). And Pacnet's IP VPN and data centre services in China would be of particular interest to Telstra. The deal is subject to regulatory approval and is expected to be completed by mid-2015.
Along with its EAC-C2C and EAC-Pacific (Unity) undersea network and 109 access points globally, Pacnet is the first and only foreign company licensed to provide IP VPN services and data centre network services in China. And Pacnet's EAC-C2C cable network lands in Qingdao and Shanghai, China.
The US$697 million acquisition, including approximately $US400 million in debt, encompasses Pacnet's joint venture in China, PBS. It was thought that Telstra was prepared to pay as much as $1 billion and some analysts were surprised at the size and nature of the deal, with the telco predominantly adding bolt-on opportunities in the region.
"Asia is an important part of our growth strategy. We believe this acquisition will help us become a leading provider of enterprise services to multinational companies and carriers in the region," chief executive David Thodey said in a statement.
Telstra chief financial officer Andy Penn said Pacnet was an attractive acquisition because it was value accretive, and while the telco is open to another large acquisition, it would likely stick to bolt-ons, joint-ventures and organic growth.
"We wouldn't rule out doing a further sizeable transaction, but they're few and far between and those that potentially are there, you struggle to make them stack up economically as well," Mr Penn said.
The deal is subject to regulatory approval and is expected to be completed by mid-2015.
Telstra shares are trading around a 13-year closing high of $6.
In the year to December 13, Pacnet had revenue of US$472 million and earnings before interest, depreciation and amortisation of US$111 million.
Telstra has identified $65 million in run rate synergies to be realised in the first two years after the deal is complete.
Credit Suisse analyst Fraser McLeish said the price was at a good multiple.
"I'm not sure it adds a lot to Telstra from a network perspective. Telstra has already got a pretty strong network infrastructure in the region, but it does add customers, revenues and scale to Telstra global," Mr McLeish said.
"Their Asian expansion strategy has been a range of organic where they can, joint ventures where possible and acquisitions. I think the issue is just finding acquisitions that fit. There's a limited amount of things available, but I do think this broadly fits within that Asian strategy."
The IP VPN and data centre network services in China would be of particular interest to Telstra, Mr McLeish said.
"The addition of Pacnet's subsea fibre network, data centre assets, capability in China, and dedicated employee base to Telstra's world-class infrastructure and management will give it the ability to accelerate business growth in the region," Pacnet chief executive Carl Grivner said.
"There is a tremendous opportunity for this combination to address the growing demand for services throughout the Asia-Pacific region and provide superior solutions and service to customers," he said.
Over the past 12 months, Telstra has more than doubled the amount of resources it has in Asia searching for potential investments
With as much as $5.1 billion in cash sitting in its warchest, Telstra has been busily forming partnerships in Asia, as well as other regions, in an effort to expand the company beyond its traditional voice and internet businesses in Australia.
It is not the first time Pacnet has caught the eye of other telco operators in the region.
In 2012, Indonesia's largest telecommunications provider, Telkom Indonesia, looked at picking up Pacnet for up to US$1 billion, but later cancelled its plans.
In August, Telstra signed a jointed venture with Telkom Indonesia to sell a range of services in the region
Source: The Sydney Morning Herald