December 23, 2014 / 6:55 AM / in 4 years

Australia's Telstra buys Pacnet, expands Asia presence cheaply

A woman uses a Telstra public phone in suburban Sydney, August 9, 2012. REUTERS/Daniel Munoz

SYDNEY (Reuters) - Australia’s Telstra Corp Ltd (TLS.AX) said it will buy undersea cable firm, Pacnet Ltd, from its private equity owners for $697 million, paying less than analysts expected while boosting its Asia presence dramatically.

The deal gives Australia’s largest telecom company instant revenue from Internet service carriers using Hong Kong and Singapore-based Pacnet’s 28,000-mile submarine network, the world’s biggest. Pacnet cables stretch from China to the rest of Asia and across the Pacific to California.

It also gives Telstra exposure to China’s growing network management industry as more companies use cloud computing, and more office workers access company email and servers remotely. Pacnet says its Pacnet Business Solutions joint venture is the only foreign firm licensed to sell those services in China.

The selling price was markedly cheaper than the roughly $1 billion many analysts had expected. Pacnet’s owners, Ashmore Investment Management Ltd, Spinnaker Capital Ltd and Clearwater Capital Partners, have been trying to cash out of their investment for several years, according to Australian media.

“We’re... interested for our existing customers in that move into China to see what we can do to provide a more integrated set of services,” Brendon Riley, Telstra Group Executive of Global Enterprise and Services, told a teleconference.

In August, Telstra surprised investors by saying it would buy back A$1 billion ($810 million) of its shares and lift dividends, partly because of a cash windfall from selling its stakes in Hong Kong mobile business CSL and directories business Sensis.

It said then that it still had a war chest of funds to buy companies which would help it grow in Asia. The Pacnet deal gives Telstra new Asian multinational companies as customers while bringing high-end data services from Australia to Asia, it said on Tuesday.

Pacnet’s owners could not immediately be reached for comment. In a statement, Pacnet Chief Executive Officer Carl Grivner said the deal would give his company the backing to speed up its growth in Asia.

In Sydney Telstra shares closed down 0.7 percent at A$5.96 while the broader market fell 1 percent.

Reporting by Byron Kaye and Swati Pandey; Editing by Kenneth Maxwell

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