Telstra (TLS) shares rose more than 2% yesterday after the company told the market before trading started that it was abandoning its mobile phone proposed joint venture in the Philippines.
The telco said that it had ended talks with San Miguel, the beer and consumer products group, to build a new mobile network in The Philippines.
The news ended months of talks on the proposal that had seen a number of Telstra shareholders worry about the cost and whether it would add value. An additional worry was that Telstra would only be allowed to own 40% of the joint venture, but would be required pay $1.3 billion for that stake, with the joint venture going on to borrow $US3.5 billion as a minimum to build the basic network.
Telstra had wanted to invest a billion or more dollars into the joint venture that would’ve taken on local mobile operators Globe Telecom and PLDT.
Their networks are mostly old 2G standard and are basically just phone calls and text messages with no mobile internet, inadequate GPS and Telstra was proposing to move to the current, more modern 4G technology.
That would have forced PLDT and Globe to spend heavily to match the new network, which is faster, handles data more speedily and has greater capacity. PLDT and Globe shares surged in Manila yesterday – PLDT up more than 12% at one stage yesterday and Globe shares rising more than 8% at one stage yesterday after the Telstra statement.
Telstra’s share price has tumbled from more than $6.20 since talks when the deal was first confirmed in August of last year, to a low of $4.96 in late February.
The shares edged back over $5 as media reports suggested the talks were not progressing. Yesterday’s announcement saw them rise 11.5 cents to $5.28.
TLS 1Y – Telstra drops Philippines JV plan
Yesterday’s rise was the largest so far in 2016, but the shares are still 14% under the level of last August when the San Miguel talks were first confirmed.
Telstra CEO Andy Penn yesterday confirmed that both parties had ended negotiations.
“Despite an enormous amount of effort and goodwill on all sides we were simply unable to come to commercial arrangements that would have enabled us to proceed," he said in a statement.
"While this opportunity is strategically attractive … it was obviously crucial that commercial arrangements achieved the right risk-reward balance for all involved.
"We continue to pursue growth opportunities in Asia consistent with our strategy."
San Miguel Corporation President Ramon Ang had earlier told The Philippine Daily Inquirer that the negotiations had ended after months of deadlock.
"Both SMC and Telstra worked hard to come up with an acceptable resolution to some issues," he reportedly said. "However, we agreed we can no longer continue with the talks. I believe this is best for all parties."
