Telstra (ASX:TLS) share price higher following Digicel Pacific acquisition news

It has been a good day for Telstra’s shares…

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It has been a good start to the week for the Telstra Corporation Ltd (ASX: TLS) share price.

In morning trade, the telco giant’s shares are up 2.5% to $3.82.

This means the Telstra share price is now up 26% since the start of the year.

Why is the Telstra share price rising today?

Investors have been bidding the Telstra share price higher today after it announced a major acquisition.

According to the release, Telstra has teamed up with the Australian Government to acquire the South Pacific-based telco, Digicel Pacific.

The two parties have agreed to pay US$1.6 billion up front and up to an additional US$250 million, subject to Digicel Pacific’s business performance over the next three years. The good news for Telstra, though, is that the majority of this will be covered by the government.

Although Telstra will own and operate the Digicel business, it will only be contributing US$270 million of equity to the US$1.6 billion purchase price.

Another positive, which may be boosting the Telstra share price, is that the deal is expected to be earnings per share accretive. In fact, management estimates that it will be more accretive than a share buyback.

Telstra’s Chief Executive Officer, Andrew Penn, commented: “Telstra provided guidance to the market for FY22 at its recent full year results presentation and it also provided aspirations for FY23. These did not include any allowance for the Digicel Pacific acquisition which will further enhance our outlook depending on the timing of completion.”

Speaking of which, completion is expected to occur in the next 3 to 6 months. Though, it remains subject to Government and Regulatory approvals.

Where will the Digicel business fit in?

The release notes that once the transaction and Telstra’s corporate restructure complete, the Digicel Pacific business will become a fourth subsidiary of the new Telstra holding company.

It will be overseen by a Telstra controlled board, which will also include current owner Denis O’Brien and two independent directors.

“We understand the need to ensure this is a stand-alone business and that Telstra delivers on its commitments as part of the T22 and T25 strategies, as well as our intention to grow in coming years,” said Mr Penn.

Overall, judging by the Telstra share price performance today, the market appears pleased with the plan.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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