Telstra Share Sale Can't Hide Day Of Division

Sydney Morning Herald

Tuesday October 10, 2006

Matt O'Sullivan and Kate Askew

THE Federal Government and Telstra will head into the country's biggest share sale in seven years having failed to mend their differences over the nomination to the company's board of the Prime Minister's former adviser.

The unresolved differences threaten to result in a disunited board as retail investors buy into the T3 sale in the hope the company's $11 billion transformation plan will turn around its flagging fortunes.

Yesterday, the Finance Minister, Nick Minchin, launched the sale of the Government's $8 billion Telstra stake, offering retail investors a carrot to buy into T3. The inducements include a 10-cent-a-share discount, one free share for every 25 owned, and a guarantee of buying 3000 shares in the offer.

But in an unprecedented stand-off, Telstra has used the prospectus to warn investors that the election of Geoff Cousins as a director could upset the board.

"Telstra believes that there is a risk if Mr Cousins cannot be considered an independent director that this could prove disruptive to the smooth and effective functioning of the board," the T3 prospectus said.

The statement puts Telstra directly at odds with the Government. Senator Minchin said Mr Cousins was experienced as a company director, was independent and "is certainly not being elected to the board by the Government as a representative of the Government" . Privately, the Telstra board disputes this.

"We have every confidence in his capacity to serve this board in ... the interests of the company and not as any sort of representative of the Government," Senator Minchin said yesterday.

The disagreement over Mr Cousins resulted in marathon talks through Sunday over the finer details of the crucial offer document. The stand-off delayed the official launch by two hours yesterday, but by 10.30am the two parties had agreed to disagree over the description of Mr Cousins's nomination in the prospectus.

Despite his nomination late last month, Mr Cousins confirmed yesterday that he still had not been contacted by Telstra's board.

Institutional investors have voiced their concern over what they see as the Government's flagrant disregard for corporate governance practices by nominating their candidate for a Telstra board seat.

The move is seen as galling given the Government is about to sell its $8 billion stake in Telstra, with the remainder going into the Future Fund.

"I think it's fair to say what the Government has done, particularly the timing, is fairly strange," Investors Mutual's investment director, Anton Tagliaferro, a shareholder in Telstra, said yesterday.

But the Government has backed away from threats to vote against the re-election of two existing Telstra directors.

Senator Minchin confirmed yesterday that it would back the re-election of Charles Macek and John Stocker at Telstra's annual meeting on November 14.

The Prime Minister, John Howard, who came under pressure in Parliament to explain the nomination of Mr Cousins to the board, said the former advertising executive would be "utterly independent and he is not a stooge of the Government".

But Labor's communications spokesman, Stephen Conroy, accused the Government of "bullying, intimidating and threatening" the Telstra board by insisting on the appointment of Mr Cousins. He claimed the Government had effectively told the board "you will obey or you will be exterminated".

Senator Minchin also rejected suggestions the difficult relationship between Telstra and the Government would dampen investor confidence in T3, saying that investors were "used to there being a certain amount of static".

Telstra's chairman, Donald McGauchie, yesterday declined to outline the exact reasons for the company's objections to Mr Cousins, instead directing people to read the prospectus.

The prospectus also details "extensive regulation that significantly affects [Telstra's] business", including concerns over the prices it can charge competitors to use its copper-wire network.

Argo Investments' managing director, Rob Patterson, a major shareholder in Telstra, said the dispute over Mr Cousins was "just another example of the problem of government being involved".

WHAT IS ON OFFER

SMALL INVESTORS

Pay $2 per share now Balance in early 2008 (could be more or less than $2*)

TELSTRA SHAREHOLDERS

$2 plus remainder in 2008

Loyalty offer of one free share for every 25 shares held until 2008.

INSTITUTIONS

$2.10 now and balance in early 2008.

DIVIDENDS

28 cents paid in September/October next year.

* depends on competitive bidding for shares by brokers and institutions.