Forget the various enticements the Government and its well-paid advisers are using to decorate T3 – the decision whether or not to invest rests entirely on the credibility of Sol Trujillo and the Telstra board. Can you trust Sol when he tells you Telstra is going to be a great and growing company in two years’ time?
Unfortunately Sol’s credibility has already been damaged by a sale process that’s only days old. And that makes it harder to believe he’s telling the truth about how Telstra will be performing when the Future Fund starts selling its massive holding.
The damage comes on two fronts. When Sol rode into town, firing from the lip, one of his targets was the previous management paying dividends out of borrowings, not profits. But what’s Sol doing now? Borrowing to maintain dividends at 28 cents a share. And there’s really only one reason for that: the board had to keep the Telstra share price up enough to allow the Government to get T3 away. Everything Sol said about Ziggy on dividends now applies equally to Sol.
A key focus during T3 will be dividend policy, but just watch the board and management twist and prevaricate on that one. (McCrann nailed the tricked-up nature of the T3 dividend game in his Saturday column). The second blow to Trujillo’s credibility is Telstra’s alleged kow-towing to head used-telco salesman Nick Minchin over criticising the regulatory regime from here to T3 completion. At first it seems Amigo Phil Burgess didn’t get that message, but by the looks of the Smage, he’s now been sidelined with other matters.
If Telstra’s prospects are stuffed by the ACCC but Sol has agreed not to say as much while punters are being loaded up with the stock, you can’t trust Sol when he tells you there’s light at the end of the tunnel in a couple of years’ time.
The bottom line for Telstra is that it complies with Tony Harris’ dictum that everything ends up being capitalised – the very fat dividend to be offered for 18 months, as much as 20 per cent including franking credits, will be built into the share price by the market.
So it comes down to whether you trust Sol and his board to deliver a vision splendid in two years. Do you?