Telstra struggles to mend rift ::

Author: Dennis Shanahan and Tim Blue
Date: 05/10/2006
Publication: The Australian

TELSTRA'S leadership was locked in negotiations last night to settle a dispute over the appointment to the board of former Optus boss Geoffrey Cousins.

The negotiations over the controversial draft of the prospectus for the $8 billion sale of Telstra (tls.ASX:Quote,News) coincided with speculation that the shares would need to be priced at about $2.80 to be worth buying.

One institutional investor said the Government had a dilemma as a high price would deter investors, while a low price could attract a raider that would break up the company.

Clime Asset Management chairman Roger Montgomery said his firm would only purchase a stake in Telstra at the right price, purely for the possibility of the company becoming involved in a takeover play.

"We see the shares being worth only $2.80, so it will be interesting to see what price the Government puts on them," Mr Montgomery said.

Telstra T3 shares will be sold in two tranches.

A low price could be a disaster for the Government, which enthusiastically encouraged "mum and dad" investors to jump into the first float, at $3.30 a share and for the second tranche at $7.40.

The prospectus for the sale of the Government's 51per cent share of Telstra has to be released on Monday. The prospectus will include details of discounts and entitlements for existing Telstra shareholders and the regulations governing the company.

But the main political dispute between the Government, as both major shareholder and seller of Telstra, and the telecommunications monopoly has been about the Government's appointment of Mr Cousins to the board and claims he will be "John Howard's man" spying on Telstra.

Claims that Mr Cousins is unacceptable is damaging the Telstra sale process and setting the Government against the Telstra board and management. Telstra has formally opposed Mr Cousins's appointment to the board, although the Government has the numbers to vote him on even if opposed by Telstra.

The draft prospectus makes a critical reference to Mr Cousins and his appointment and the Government has responded to Telstra's draft.

The Government has been unhappy with the way Telstra has opposed Mr Cousins and there is frustration in cabinet with what is seen as further damage to Telstra's sale price.

Government sources do not believe it is possible for Telstra to be critical of Mr Cousins's appointment and credibly claim the company's management can function efficiently.

The Government yesterday responded to Telstra's initial draft of the prospectus and cover letter of chairman Donald McGauchie through Finance Minister Nick Minchin.

Last night's Telstra meetings were being held to discuss the response. Further negotiations are expected before the weekend.

Telstra shares closed unchanged yesterday at $3.74.

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