The Telstra Corporation Ltd (ASX: TLS) share price will be one to watch on Monday.
This follows the release of an announcement out of the telco giant this morning.
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Why is the Telstra share price on watch?
This morning Telstra responded to a news story in the Fairfax press at the weekend suggesting that the company may be on the verge of making an acquisition.
According to the release, Telstra has confirmed that it has been in discussions regarding a potential transaction to acquire telecommunications company, Digicel Pacific in the South Pacific region. This will be in partnership with the Australian Government.
However, it has warned that the discussions are incomplete and there is no certainty that a transaction will proceed. Telstra intends to keep the market updated as appropriate.
What is Digicel Pacific?
Digicel Pacific was founded in 2006 by Denis O'Brien, an Irish entrepreneur, and is a leading provider of communications services across Papua New Guinea, Fiji, Nauru, Samoa, Tonga and Vanuatu.
It has a strong market position and an extensive network coverage in the South Pacific region. In calendar year 2020 it generated EBITDA of US$235 million.
What is happening?
Given that Telstra is currently offloading assets, news of a potential acquisition will no doubt have come as a surprise to investors.
The release explains that Telstra was initially approached by the Australian Government to provide technical advice in relation to Digicel Pacific, which it notes is a commercially attractive asset and critical to telecommunications in the region. After which, the two parties began looking at a potential acquisition of the Pacific-based telco.
Positively, if Telstra were to proceed with a transaction, it would be with financial and strategic risk management support from the Government.
Management also highlights that in addition to a significant Government funding and support package, any investment would also have to be within certain financial parameters, with Telstra's equity investment being the minor portion of the overall transaction.
The Telstra share price is up 25% in 2021.
