Telstra sells $454m stake in Sensis

Telstra has agreed to sell a 70 percent stake in its Sensis directories business to a US-based private equity firm for $454 million, far less than the market had expected.

The carrier said today Platinum Equity had agreed to take the majority stake, which includes Sensis' directories and WhereIs maps.

Telstra retains the remaining 30 percent, including the voice services portion of the business, which handles directory assistance, the Trading Post, and administrative services to the Sensis business.

"The fact that we have retained a 30 percent stake in Sensis shows our belief it will continue to lead the market and deliver value to Telstra shareholders," Telstra CEO David Thodey said in a financial filing.

Telstra's chief financial officer Andy Penn said that the retained voice services are presently expected to be contribute about $70 million in earnings before interest, taxes, depreciation and amortisation (EBITDA) to the carrier.

However, those revenues are unlikely to sustain in the mid to longer term.

"I think the voice services business is declining in th same way the directories business [generally] is declining," Penn told an analyst briefing.

"We would expect some of those costs and benefits to decline over time but only in line with what we would have expected in the underlying Sensis business itself."

The more financially lucrative portion of the Sensis business that Telstra is keeping consists of administrative services that will continue to be supplied, albeit now at an "arm's length".

"The provision of telecommunications services [to Sensis] need to put on an arm's length basis, which will  derive further benefits for EBITDA," Penn said.

"There's also a range of shared services, superannuation and other costs that telstra incurs on behalf of Sensis that will be charged through to Sensis or adopted by the new Sensis organisation."

Billion-dollar shortfall

The sale price is far lower than local markets had speculated. Weekend reports pegged the asking price for Sensis as high as $3 billion, based on a recent estimate by Credit Suisse Australia.

Telstra this morning said Sensis is valued at $649 million, consisting of Platinum's $454 million stake and Telstra's remaining $195 million stake.

Thodey acknowledged the sale price differential but said it was reflective of what other directories businesses worldwide were worth.

"After the GFC [global financial crisis], life changed," he said.

"We can't go back before that period. If you look at any directories business sold since then, this is the valuation of the change.

"It is what it is."

Telstra indicated it "expects to book an accounting loss on Sensis of approximately $150 million subject to completion timing and adjustments".

"Approximately $100 million is expected to be included in the December 2013 half year results with the balance accounted for on completion [of the sale], which is expected in the second half of FY14," Telstra said.

Keeping directories

Telstra said today that Sensis would continue to produce the print directories in line with its carrier license conditions.

Thodey said that Telstra had reviewed its license conditions in the lead-up to the sale.

"We need to go through the details with the Department [of Communications] and respective regulatory bodies to make sure we fulfil our obligations," he said.

Although Telstra is mandated to produce phone directories via its Sensis business, it is not presently required to keep production in Australia, and escaped the imposition of a license condition to that effect last year.

The sale is also predicated on receiving approvals from the Foreign Investment Review Board.

Thodey said that it would be "business as usual over the next few months" while the transaction progresses.

He declined to discuss long-term implications, including for Sensis staff, saying that it was "premature ... while we wait to conssumate the transaction".

War chest

Sensis generated earnings before interest, taxation, depreciation and amortisation of $571 million for the year ending June 2013, down 22 percent from the previous year.

Chief Financial Officer Andrew Penn told investors at the August 2013 results briefing that the transitioning of the Sensis business to a digital model "remains a challenging one".

The sale of Sensis would further boost Telstra's cash war chest to more than $8 billion to invest in new growth businesses and technology services and to further expand its mobile network and leading share of the Australian mobile market.

Last month the company sold its Hong Kong mobile phone business for $2.4 billion to HKT, a company controlled by billionaire Richard Li.

(Additional reporting by Reuters).