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What you need to know about Telstra Corporation Ltd’s $1 billion share buyback offer

Telstra Corporation Ltd (ASX: TLS) announced a share buy-back plan along with its 2014 full year results. In addition to increasing the final dividend to 29.5 cents per share, up 5.4%, the share buy-back is one thing that shareholders were waiting for.

Below are the highlights of the plan that you should know about and a review as to whether new investors should buy shares before the share buy-back commences.

How much to be bought back

About $1 billion will be returned to shareholders through the off-market share buy-back plan.

How will the plan be conducted?

It is a tender process which closes on Friday, 3 October 2014. Telstra will determine the final buy-back price as the lowest price at which it can buy-back the targeted amount of capital ($1 billion), based on the tenders received from all participating shareholders.

Eligible shareholders will be invited to tender their shares to Telstra at specified discounts from 6% to 14% inclusive (at 1% intervals) to the market price and/or as a final price tender. Eligible shareholders may also select a minimum price below which shares tendered by them will not be bought back.

Priority allocation of shares to be bought back

Before applying any scale back of the buy-back, Telstra will first buy-back a priority allocation which is expected to be 925 shares from each shareholder who has successfully tendered shares.

(my note: for investors who don’t hold Telstra shares and want to take advantage of this offer’s priority allocation, at about $5.60 a share now, 925 shares would be worth about $5,180. Having this number of shares or less could give you priority allocation for successfully tendered shares).

Additionally, shareholders who tender all of their shares at one or more tender discount equal to or greater than the buy-back discount and/or as a final price tender, and who would be left with a holding of 375 shares or less as a result of the scale back, will have their tender(s) accepted in full without applying a scale back.

(my note: again, for new investors, if you hold up to the base 925 shares and they are accepted for priority allocation, then having 375 shares or less remaining would allow you to avoid the scale back).

Will shareholders in the share buyback get the final dividend?

Shareholders will receive the fully franked dividend of 15 cents per share on any shares held by them on 29 August 2014 even if they are subsequently successfully tendered under the buy-back.

All the details

For full terms and conditions of the buy-back, a booklet is to be distributed to shareholders by Thursday, 4 September 2014.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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