DENIS O’Brien’s Digicel has completed the sale of its Pacific Ocean arm to an Australian firm in a deal that values the division at up to $1.85bn (€1.84bn).
The sale to Telstra has been backed by the Australian government against a background of tensions with China over regional influence which put a national security focus on telecommunications infrastructure.
The price equals 8.3 times Digicel Pacific’s adjusted earnings before interest, tax, depreciation and amortisation of around $222m for the year ended March 31, 2021.
A payment of $1.6bn will be payable to Digicel upon closing of the transaction. Digicel also expects to achieve the maximum payment of $50m for the first earn-out period, based on service revenue performance for the year ended March 31, 2022.
Digicel operates the largest mobile networks in Australia’s closest geographical neighbour Papua New Guinea, as well as in Fiji, Tonga, Vanuatu, Nauru and Samoa.
There will be no change to the brand in these markets, while the current management team will remain with the division following the sale.
“Having established our Pacific operations as a business start-up in 2005, we depart with enormous pride in a team that has made affordable best-in-class communications available to more than 10 million people across six of the most exciting economies in the region,” said Digicel’s founder and chairman Denis O’Brien.
Digicel has reached an agreement with Papua New Guinea’s government to enter into an international arbitration process in Singapore to resolve a disputed one-time exit tax.
This agreement will also see the state waive a further $14.2m that was being sought in relation to the non-payment of the exit tax. As part of this arbitration, $99.4m has been placed in escrow.
Under the government of Australian Prime Minister Scott Morisson, relations between Canberra and Beijing were characterised by frequent rows and there were concerns over the interest of Chinese government-linked firms in Digicel.
The deal with Telstra was mooted after media reports in 2020 that said Chinese companies including China Mobile, Huawei and ZTE were potential bidders for Digicel Pacific.
That sparked a sharp reaction in Australia which at the time was embroiled in an increasingly bitter trade and national security stand-off with Beijing for regional influence, with Australia seeing a Chinese consumer boycott of Australian goods as a ban in all but name.
Australia for its part banned the use of technology from China’s Huawei in its domestic 5G telecoms infrastructure.
China is an important Australian trade partner but the government in Canberra has become increasingly alarmed by the Asian nation’s more assertive stance in the region and in Hong Kong, where Australians have deep economic and social ties.
For Digicel, the Papua New Guinea business is one of the Irish-owned group’s most important units and the wider business in the Pacific is relatively less indebted than the group’s other main markets in the Caribbean, meaning a sale could produce a debt-reducing windfall overall.