Digicel is selling a “cracking business” in the Pacific Islands to Australian telco Telstra with a “lot of growth” potential, Digicel’s owner and chairman Denis O’Brien has said.
Speaking to broadcaster CNBC about the deal, which was announced on Monday, Mr O’Brien said: “There is a lot of growth left in the business and that made it very attractive, and it generates about $235 million of ebidta [earnings before interest, tax and depreciation] and has very good cash flow.
“The main thing is that Telstra is getting a cracking business and the Australian government are also involved.”
“There is a lot of growth left. About 2.5 million out of a seven million population in Papua New Guinea have a mobile phone so that would be 70 or 80 per cent pretty quickly.”
Telstra has agreed to acquire Digicel Pacific for $1.6 billion. This will be funded with $1.33 billion from the Australian government and $270 million in equity from Telstra. The deal is subject to regulatory approvals and is expected to close within three to six months. Under the terms of the agreement, the asset will be held by a subsidiary of Telstra.
The Digicel Pacific business will be overseen by a Telstra-controlled board, which will also include Mr O’Brien and two independent directors.
In a briefing with investors and media, Telstra chief executive Andrew Penn said Mr O’Brien would “stay on the board for the first couple of years or so, to help us navigate the transition”, and the business would continue to use the Digicel brand with the local management teams remaining in place.
Digicel Pacific comprises businesses in Papua New Guinea, Fiji, Nauru, Samoa, Tonga and Vanuatu with a combined 2.5 million subscribers. Digicel is the number one player in each of those territories except for Fiji, where it is number two. Some 83 per cent of customers are based in Papua New Guinea.
Digicel has been active in the Pacific region for the past 16 years. Mr O’Brien said the group received a number of unsolicited offers for the business “over the last year or so and we decided it was a good time to sell. The timing was right for everybody.”
The Australian government’s involvement in the deal appears to be a measure to counter China’s rising influence in the Pacific region. When asked about this, Mr O’Brien told CNBC: “The world is changing and some assets are becoming more strategic than others. It’s long recognised that China has upped its influence in the Asia Pacific region. This [deal] is an extension of Australia’s role and friendship in the Pacific region.”
A presentation by Telstra to investors post the announcement of the deal shows that Digicel’s subscriber numbers have been flat over the past three financial years while its service revenues declined by $24 million to $431 million.
Its average revenue per user – a key metric in the industry – rose from just under $10 to $11.20 over the period.