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April 7, 2004

Telstra buys Kaz for $255m

Telstra Corp Ltd, the Australian telecoms incumbent, has confirmed that it will purchase Sydney, Australia-based Kaz Group for AUD 333m ($254.5m) as part of its strategy to diversify its business and grow revenue.

By CBR Staff Writer

Telstra will pay AUD 0.40 ($0.30) for each Kaz share, representing a 13% premium on its last trading price of AUD 0.35 ($0.27). Telstra said the acquisition would create a profitable business unit with initial revenues approaching AUD 1bn ($764m) annually.

For Telstra, the transaction delivers increased capability in the ICT services market, a key driver of future growth for Telstra’s Business and Government division, by enabling us to serve an increasing number of customers who are looking to telecommunications companies as partners who deliver and manage their complex IT and Business Process Outsourcing services requirements, Telstra CEO Ziggy Switkowski said in a statement.

Our current intention is to operate Kaz as a stand-alone ICT business of sufficient scale to create a powerful force in the ICT marketplace, said David Thodey, Telstra Business and Government managing director, who added that Kaz would bring experienced people with skills in BPO, systems integration, consulting, applications development and IT management services to complement Telstra’s existing managed services business and telecommunications expertise.

The markets have yet to fully back the acquisition. Telstra’s shares have risen to AUD 4.57 from AUD 4.52 since speculation regarding the merger began on Monday morning, reflecting investor caution regarding the purchase.

The Australian press has quoted several investment managers unhappy about the deal. Telstra management are rushing out in an attempt to buy growth, Teresa Chow, of RBC Investment Management told the press, adding: Telstra should be concentrating on its core business and returning capital to shareholders, rather than making investments that aren’t going to add much to earnings.

It’s hard to work out what Telstra is doing with such a small acquisition, Matthew Kidman, from Sydney’s Wilson Asset Management said. If it works that’s great, but if it doesn’t sentiment toward Telstra management will sour further. There’s not much upside.

Despite the doubters, Telstra claims the purchase will increase earnings per share within two years. Kaz chief executive Peter Kazacos will continue to lead the business, which employs about 2,500 people.

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This article is based on material originally published by ComputerWire

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