Telstra CEO in the eye of a storm

By Sonali Paul

MELBOURNE: The future of Telstra Corp Ltd's chief executive was in doubt and its media acquisition strategy up in smoke after the Australian telecoms group's chairman resigned abruptly over boardroom divisions.

Bob Mansfield's exit late on Wednesday comes as Telstra scrambles to find new businesses to boost revenue while battling low growth in its core markets and aggressive rivals led by the local arm of Singapore Telecommunications Ltd, Optus.

Mansfield had supported Chief Executive Ziggy Switkowski's ambition to expand the former monopoly, 51 percent owned by the federal government, into media ownership. A proposed tilt at the country's second-biggest newspaper publisher was rejected by the board.

With Mansfield gone, investors drove up Telstra's shares on a bet that a new chairman would steer the former telecommunications monopoly away from chasing acquisitions.

"I think the market is speculating on the increasing probability that the company will revert more to utility-type behaviour, which would increase the cash flow to shareholders and make it appear less risky," said Invesco Australia analyst Luke Sinclair.

Telstra announced well after the stock market closed on that Mansfield had resigned as chairman and a director of the board effective immediately. Mansfield said he could no longer lead a split board.

"VERY MUCH A DUO"

Speculation swirled that Switkowski would be examining his future after Mansfield's exit, but analysts said his fate would depend on who the new chairman was.

"Obviously Dr Switkowski will be considering his position because he and Bob Mansfield were very much a duo," opposition communications spokesman Lindsay Tanner said on television.

Telstra shares, the market's most active stock, rose three percent to A$4.70 by early afternoon in a flat broader market. However, since the start of 2004 the stock was down two percent against a four percent rise in the broader market.

"On balance I think it will be seen positively," said Shaw Stockbroking analyst Scott Marshall.

"The market will want to see a suitable replacement for Mansfield as chairman. The market will also want to see the board dissension cease, and part of that will be that there are fewer media-related takeover proposals put to the board."

Some analysts said Switkowski might stay on. He renewed his contract for four years just last August, even after making poorly timed investments in a Hong Kong-based undersea cable joint venture and wireless business that resulted in more than A$2 billion in write-offs.

In the wake of the disastrous acquisitions at the height of the dot-com boom in 2000, the company is desperate to please its horde of small shareholders whose investment has sunk 38 percent since the government's second sale of Telstra stock in 1999.

JURY OUT ON LATEST BUYS

In its effort to find new revenue, Telstra has spent nearly A$1 billion in the past six weeks buying classified advertising group Trading Post and technology services company Kaz Group Ltd.

"Telstra has remained intent on acquisitions, but at this stage has not shown success in that strategy," said Marshall, adding the jury was still out on the Trading Post and Kaz buys.

The latest acquisitions came in the wake of media reports in February that the board had rejected a proposal from Mansfield and Switkowski to take over newspaper publisher John Fairfax Holdings Ltd for more than A$3.5 billion.

The deal, which would have involved merging Telstra's Sensis Yellow Pages business with the publisher of the Sydney Morning Herald and the Australian Financial Review, was reported to have been killed off by board members including Sam Chisholm, who has previously worked for media moguls Rupert Murdoch and Kerry Packer.

Analysts said a new chairman did not necessarily need telecommunications experience.

"But they do need to have a strong view of the company's position in the market and what can be achieved given the regulatory environment and changes in technology," said BT Financial Group analyst Scott Maddock.

Deputy Chairman John Ralph will act as interim chairman pending the appointment of a new chairman.

The federal government declined to comment on the situation at Telstra on Thursday, after having said on Wednesday that it looked forward to working with Ralph. It said Mansfield had provided strong leadership over the past four years.

(Additional reporting by Joanne Collins)

© Reuters