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April 5, 2004

Telstra said to be considering $300m Kaz acquisition

Speculation is rife regarding the future of Australian IT services company Kaz Group, which is rumored to be in acquisition talks with the country's incumbent telecoms operator, Telstra.

By CBR Staff Writer

Telstra told the markets yesterday that it had been in talks with Sydney-based Kaz Group, but that no decision to proceed with any transaction has been taken. As a result, Telstra’s share price yesterday fell to a six-month low of AUD 4.45 ($3.37) before recovering to AUD 4.50 ($3.40) from opening at AUD 4.52 ($3.42).

Nevertheless, further speculation was fueled by Kaz, which suspended trade in its shares until today or when the announcement is released to the market. The purchase price for Kaz is believed to be AUD 400m ($303m). However, this would represent a hefty premium on its AUD 293m ($222m) market value based on its closing price of AUD 0.36 ($0.27) on Friday.

The takeover is seen to be part of Telstra’s broader strategy to return to revenue growth of between 4% and 6% by 2006.

Despite the speculation, investors are still not clear whether a potential Telstra / Kaz merger would be a good thing for the telecoms operator, given the poor performance of the IT services industry in past years, and the fact that it will be competing with large foreign rivals such as IBM, EDS, and Dimension Data.

Kaz, which is the second largest indigenous IT services providers in Australia, after the recently merged Volante/Ipex, recorded an 85% decline in net profit to AUD 1.5m ($1.16m) on revenue that grew 41% to AUD 355.6m ($269.4m) in the 12 months to June 30, 2003.

This article is based on material originally published by ComputerWire

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