Will a split in Telstra Corporation Ltd (ASX:TLS) trigger a share price rise?

There are growing calls from some experts for Telstra Corporation Ltd (ASX: TLS) to be split into two companies as its share price continues to flounder at around a seven-year low.

Desperate times call for dramatic action and speculation in the Australian Financial Review that investment bankers are working on such a plan certainly fits the bill.

The $33 billion question for shareholders is whether this could help Australia’s largest telco to claw back from the near halving of its share price over the past year.

It’s suggested that Telstra could keep its infrastructure business that includes its mobile towers, data centres and what’s left of its copper network, while divesting its retailing business into a new listed company.

I think such a move will excite the market for two reasons. The first is sentiment as investors love divestments. You only need to look at Wesfarmers Ltd’s (ASX: WES) since it revealed plans to cut the apron strings to Coles supermarkets to see what I mean.

History has shown that most companies that have spun-off part of their business into a separate company have performed well (particularly the new entity).

There are usually a couple of reasons for this, but financial academics will usually cite a more efficient allocation of capital as the top reason.

In Telstra’s case, the capital requirements to run an infrastructure business are different from a customer-facing business.

The idea is that investors who want a steady dividend and are happy to sacrifice growth will stick with the hard asset-rich Telstra, while those who prioritise growth over dividends will want a piece of the service reseller business.

The sales-focused Telstra will also be free to cross-sell a range of products and services from other vendors, and given the size of its database, the strategy could work quite nicely.

The other reason why investors might be excited is because of Vocus Group Ltd (ASX: VOC). Many (including myself) are still haunted by the merger of Vocus with M2 Telecommunications with the latter being a competent reseller and the former bringing infrastructure assets to the marriage.

We all know how that went and I don’t think the culture and core competencies were the right fit. From that perspective, investors may take a favourable view to the idea of Telstra divorcing its sales division.

On the other hand, some may point out that TPG Telecom Ltd’s (ASX: TPM) strategy runs counter to this idea. TPG’s well respected chairman David Teoh is betting the farm on mobile infrastructure, which it is setting up in Australia and Singapore.

TPG made its fortune being a reseller and has only in recent years bought hard assets.

TPG’s share price is also a shadow of what it was 18 months ago, so the jury is still out on whether the marriage of infrastructure and sales in the sector can work.

I suspect we’ll find out the verdict sometime in 2019.

If you are looking for dividends and blue-chip buying opportunities, the experts at the Motley Fool may have just the answer for you. They’ve put together a free report on their three best blue-chip stock ideas for 2018 that are tipped to outperform the S&P/ASX 200 (Index:^AXJO) (ASX:XJO), and you can get your copy by following the free link below.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of TPG Telecom Limited and Vocus Communications Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited, TPG Telecom Limited, Vocus Communications Limited, and Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!