History

Third Leg of Australian Telco Privatization is a Success

In 2006, Goldman Sachs is one of four global joint coordinators in the third leg of the Australian government’s privatization of national telecommunications company Telstra in a challenging market environment.

Telstra Corporation Limited (Telstra) is Australia’s largest telecommunications and information services company. At its inception in 1992, Telstra was fully owned by the Australian government.

In 1996, the government announced plans to begin privatizing Telstra, with an initial offering of no more than one-third of its interest in the company. The offering of 33.3 percent of Telstra, referred to as “T1” was completed in September of 1997. A second offering of 16.6 percent (T2) followed in 1999, which brought the government’s remaining stake in Telstra down to 51 percent.

Goldman Sachs acted as business advisor to the government for T2, and when the time came for the final stage of Telstra’s privatization in 2006 (T3), the firm, through its Goldman Sachs JBWere joint venture, was selected as one of the joint global coordinators on the A$15.5 billion (US$11.9 billion) deal to sell 34.1 percent of the company, along with ABN Amro Rothschild and UBS.

The environment for the T3 offering was starkly different from that of T2, which took place at the height of the Internet boom: final pricing for T2 shares had been A$7.80 for institutional investors and A$7.40 for Australian retail investors, yet by mid-September 2006 the stock was trading at A$3.59. T3 was a large and complex deal — more than 4 billion shares needed to be sold in a single tranche while achieving what the government deemed as an appropriate financial return.

The success of Goldman Sachs and its fellow global coordinators in transaction structuring and book building for the offering resulted in the sale of more than 4.2 billion shares at a price of A$3.70 per share, which the Australian National Audit Office deemed as “fully priced.”

T3 was the first public share offer by the Australian government in seven years, the second largest equity Australian offering ever (behind T2) and the second largest equity offering globally in 2006 after the Industrial and Commercial Bank of China (ICBC) offering of US$19.1 billion. The proceeds of the offer and the Australian government’s remaining shares in the company were transferred to an independent fund known as the Future Fund, managed to fund future public sector pension liabilities.

 

This article was originally published as part of a series commemorating the 150th anniversary of Goldman Sachs’ founding in 1869.

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