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Telstra (ASX:TLS) share price rises on $2.8 billion sale, shareholder returns

The Telstra Corporation Ltd (ASX: TLS) share price is rising this morning after revealing an asset sale and shareholder returns.

Telstra sells stake in its Towers business

Telstra’s Towers business is the largest mobile tower infrastructure provider in Australia with approximately 8,200 towers.

A consortium comprising the Future Fund, Commonwealth Superannuation Corporation and Sunsuper have agreed to buy a 49% interest.

This transaction values Telstra’s InfraCo Towers at $5.9 billion. Telstra expects net cash proceeds after transaction costs of $2.8 billion at completion and the Towers entity will have no debt.

Telstra said completion is expected in the first quarter of FY22. Telstra intends to return approximately half of the net proceeds to shareholders in FY22.

Telstra has entered into a 15-year agreement (with the option to extend) with InfraCo Towers to secure ongoing access to existing and new towers.

The telco has been working for some time on its T22 strategy which includes lowering costs, becoming more efficient and taking advantage of potential monetisation opportunities.

Management explain

Telstra CEO Andrew Penn explained the rationale of this particular deal:

Telstra’s objective in seeking a strategic partner has been to maximise overall value for our shareholders, maintain control of the assets and agree terms that secure Telstra’s mobile network leadership and competitive differentiation into the future. I am pleased that we have been able to achieve that ahead of schedule through this transaction announced today.”

Mr Penn also explained that keeping 51% of the Towers business was important so that it preserves its strategic differentiation.

What will Telstra do with the money?

Telstra said it would invest $75 million into improving connectivity in regional Australia.

The telco then expects to return half of the net proceeds to shareholders. It will provide more details at its FY21 result in August, including a potential share buy-back.

The remainder of the proceeds will be used to reduce debt to ensure it maintains balance sheet strength and flexibility.

Summary thoughts on Telstra and the share price

I’m sure Telstra shareholders like the idea of receiving a sizeable dividend from the proceeds whilst still being able to control the Towers business. It seems like a smart deal for the telco.

However, a one-off asset sale alone doesn’t make Telstra shares a buy in my opinion. I’m still not convinced there is a lot of organic growth potential with the telco because of all of the competition.

There are other ASX dividend shares I’d rather be looking at for the long-term.

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