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Post Market Wrap | Telstra legal restructure on track for completion in October 2022

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This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Legal restructure formalises separate ownership of infrastructure assets in new entities
  • Restructure creates optionality to monetise embedded value in privileged infrastructure assets
  • Strong global demand exists for mobile tower assets at compelling valuations 
  • Telstra International to be established, with a focus on subsea cables
  • Global demand for high quality telecommunication infrastructure assets supports long term shareholder value accretion. 

Telstra legal re-structure  

Telstra is on track to finalise its legal restructure over the course of 2022, which will see the establishment of a new parent entity, to be known as Telstra Group Limited. Telstra shareholders will receive one new Telstra Group Limited share for each of their existing Telstra Corporation Limited shares. The legal restructure will result in the transfer of assets and liabilities between various entities within the Group. The transfers will be effected by a Scheme of Arrangement, which requires Court approval before the changes can be implemented.   

The restructure is much more than a variation to Telstra’s name; it is a fundamental change that responds to a rapidly evolving telecommunications industry driven by digitisation, analytics, Artificial Intelligence, and related technology network ‘smarts’, as well as unlocking the inherent value embedded in Telstra’s privileged assets. These key essential assets include the towers, ducts, fibre, data centres, subsea cables and exchanges that support Australia’s leading telecommunications network. The restructure is a complex process and the most significant corporate change since privatisation. 

A key outcome for shareholders is that the restructure should enable a higher overall market value to be attributed to the Group by improving visibility and returns on essential fixed assets with monopolistic style characteristics and value. This is because Telstra’s infrastructure assets have identifiable, contracted, long term, recurrent and low-risk cash flows. These assets, on a standalone basis, autonomously managed by a separate leadership group, should release value to shareholders over time. While not explicitly stated by Telstra’s management, the legal and structural separation of key monopolistic style assets provides optionality for the sale or separate ASX listing of these assets. Given their reliable cash flow and low risk profiles, compared to other service-oriented parts of the business, a standalone entity comprising these assets is likely to command a premium valuation by global investors. 

Four Standalone Business Units 

Once implemented, Telstra’s legal structure will comprise four main operating entities:

  • InfraCo Fixed
  • InfraCo Towers
  • ServeCo
  • Telstra International.  

InfraCo Fixed will own and operate Telstra’s physical infrastructure assets. These assets include ducts, fibre, data centres, and exchanges. 

InfraCo Towers will own and operate Telstra’s mobile tower assets. It is these assets that have the market keenly interested, given the strong demand and compelling valuations for this type of high-quality infrastructure. 

ServeCo will maintain Telstra’ focus on products and services, including the radio access network and spectrum assets that are mission critical to the Group’s mobile coverage and network superiority.   

Telstra International will be established as a separate subsidiary within the Group, with a focus on subsea cables. 

Intercompany Agreements have been created between the infrastructure owners (InfraCo Fixed and InfraCo Towers) and ServeCo  that support sustainable earnings for each of these entities and preserve shareholder value at the Group level.

Image: File

Looking Ahead 

The legal restructure terms, once approved by the Court, will be put to a shareholder vote to ratify the Scheme of Arrangement. The Scheme Booklet outlining the restructure terms is expected to be available to shareholders in September 2022. Depending on the date of the shareholder meeting to vote on the restructure, the exchange of new shares in Telstra Group Limited is expected to occur by the end of October 2022.

For now, investor focus is less about the state of the business today and more about how well positioned Telstra is for the future. The digital economy is the future and its dependence on a reliable, technologically superior telecommunications platform is fundamental to the vibrancy and productivity of the Australian economy.  

The legal and physical restructure of Telstra is right for the times and with the increasing value of infrastructure assets globally, the soon to be re-named Telstra Group Limited, is well placed to deliver shareholder value accretion over the long term.

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

Michael Kodari is one of the world's most consistent, top performing investor. A philanthropist and one of the prominent experts of the financial markets, he has been referred to as ‘the brightest 21st century entrepreneur in wealth management' by CNBC Asia and featured on Forbes. Featured on TV as the "Money Expert", on the weekly Sunday program "Elevator Pitch", he is recognised internationally by governments as he was the guest of honour for the event "Inside China's Future", chosen by the Chinese government from the funds management industry, attended by industry leaders, when they arrived in Sydney Australia, on April 2014. Michael and George Soros were the only two financiers in the world invited and chosen by the Chinese government to provide advice, and their expertise on Chinese government asset allocation offshore. With a strong background in funds management and stockbroking, Michael has worked with some of the most successful investors and consulted to leading financial institutions. He was the youngest person ever to appear on the expert panel for Fox, Sky News Business Channel at the age of 25 where he demonstrated his skillset across a 3 year period forming the most consistent track record and getting all his predictions right over that period. Michael writes for key financial publications, is regularly interviewed by various media and conducts conferences around the world.

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U.S. retailers limit emergency contraception purchases

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Demand for morning after pills have led to retailers having to limit purchases

Amazon has limited sales of morning after pills as demand spikes following the U.S. Supreme Court ruling overturning Roe v. Wade.

There is now a limit of three Plan B units per week on emergency contraceptive pills sold through its website.

Other U.S. retailers are also capping purchases of emergency contraceptive pills like chain pharmacy, CVS and Walmart.

Plan B is an emergency contraceptive that can be taken within 72 hours after sex. It is a synthetic form of the hormone progestin which delays ovulation briefly and prevents pregnancy.

Demand has surged following last week’s U.S. Supreme Court ruling overturning Roe vs Wade, ending the constitutional right to have an abortion.

Since the reversal of Roe v Wade, women have tried to find ways to control their reproductive health, by stocking up on emergency contraception.

Social media is flooding with calls to stock up on Plan B in anticipation of possible restrictions on contraceptive pills.

Meanwhile, some US companies have committed to paying staff travel expenses for those wanting an abortion.

Katerina Kostakos contributed to this article.

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Chinese investment in Australia drops

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China’s investment in Australia has plunged to its lowest levels since 2007

A new report from KPMG and the University of Sydney shows Chinese companies invested U.S. $585 million in Australia last year, which is down from a peak of U.S $16.2 billion in 2008.

It comes as relations between the two nations remain sour. Australia has previously called for an independent review into the origins of Covid-19, and a ban on foreign interference.

But Chinese officials have responded with trade sanctions, which have affected Australian wine, seafood and coal exports.

Australia was once a large destination for Chinese investment. In fact, the two nations signed an historic Free Trade Agreement in 2015, with a key focus on economic growth and creating jobs.

Australia’s Prime Minister, Anthony Albanese says he will not make concessions to China. The newly-elected Albanese is in Europe for a series of talks with NATO leaders.

“The resistance of Ukraine has brought democratic nations closer together which have a shared commitment to rules-based, international order,” he says.

But Chinese officials believe it is irresponsible to place Ukraine and Taiwan in the same basket.

Chinese Foreign Ministry spokesman Zhao Lijian says “Taiwan is by no means Ukraine,” and labelled Albanese’s comments as “irresponsible”.

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Target offers support to employees seeking abortions

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Target will help its employees living in states where abortions are banned by funding their travel

The company sent a memo to employees via email with the new policy to be enacted in July.

Target’s Chief Human Resources Officer says “A few months ago, we started re-evaluating our benefits with the goal of understanding what it would look like if we broadened the travel reimbursement to any care that’s needed and covered – but not available in the team member’s community”.

She says “This effort became even more relevant as [Target] learned about the Supreme Court’s ruling on abortion, given that it would impact access to healthcare in some states”.

This all comes amid the reversal of Roe versus Wade removing abortion as a constitutional right within the U.S.

This has sparked a range of companies to provide similar benefits with Amazon also providing travel coverage for employees.

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