TPG VS Telstra: dividends, mergers and impairment charges in focus
We examine some of the recent developments from Telstra and TPG Telecom.
TPG- Vodafone merger progresses
TPG Telecom (TPM) today released its scheme booklet for the near-complete TPG- Vodafone merger. Here, the telco noted that all key regulatory approvals have now been made, with only the TPG shareholder vote and final court approval remaining.
This TPG shareholder vote is set to take place on 24 June, 2020.
Reminding the market why both companies pursued a merger in the first place, Vodafone's CEO Inaki Berroeta today said:
'The merger will combine highly complementary network infrastructure and leading mobile and broadband talent, and accelerate the network investments made by both companies.'
‘Through its increased strength and scale, the merger is expected to deliver strong returns to shareholders than either business could achieve on a standalone basis,’ Mr Inaki further noted.
Ultimately, should the scheme be implemented, TPG intends to issue a special dividend to TPM shareholders. While the company did not announced the specific value of this planned dividend, Goldman Sachs analysts argued that 'TPM would have capacity for up to a 67c fully franked potential special dividend.'
The record date for this Special dividend is currently 1 July, with its expected payment date set as 13 July.
Other key takeaways from today’s announcement include:
- With the merged TPG-Vodafone entity set have 1,859 million shares outstanding, when using CY19 pro forma earnings per share (EPS) as a reference, this implies dilution of 46%, according to Goldman Sachs.
- ‘The Merger is expected to generate cost and capital expenditure synergies,’ the company said.
- The merged entity will tout historical revenues of $5,909 million against pro forma historical earnings (EBITDA) of $1,977 million – for the year ending 31 January 2020.
Telstra books Foxtel impairment
Though less dramatic than an industry reorienting merger, Telstra (TLS) recently announced it had written down the value of its 35% stake in Foxtel.
Ultimately, according to the telco, this will result in Telstra recognising a $300 million non-cash impairment charge as part of the company's full-year, FY20 results.
In response to this news, Telstra's much-respected CEO, Andrew Penn noted that:
'Foxtel has been facing industry disruption for several years and the COVID pandemic is obviously having an impact as lobal sports are put on hold, pubs are temporarily closed and advertisers are forced to carefully reconsider their investments.'
TPG VS Telstra: short and long-term share price moves
The last three months have been difficult for the shareholders of both telcos, as well as most listed companies, with Telstra’s stock falling ~16% in that period, while TPG has seen its share price decline slightly less, dropping ~10%.
Though a story of degrees, the longer-term picture for both companies is also a dour one. Over the last five years the Telstra share price has fallen ~46%; TPG, though faring better, has also handed its long-term holders a negative return, declining 15.8% in that same period.
Interestingly and looking forward, analysts from UBS currently favour the outlook for Telstra, rating the blue-chip telco as a Buy with a 12-month price target of $3.70 on the stock. By comparison, the Swiss investment bank has a Neutral rating and a $8.40 price target on TPG.
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