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Telstra, the Australian telecoms company, has agreed to purchase the Pacific businesses of Digicel in a deal largely funded by the Australian government that values the company’s equity at $1.6bn.

The government will fund $1.33bn of the purchase price, with the Australian company paying for the rest, Telstra said in a filing to the Australian Stock Exchange.

Telstra will own and operate 100 per cent of the company’s ordinary equity.

Telstra said it was initially approached by Canberra to provide technical advice in relation to Digicel Pacific, which operates in Papua New Guinea, Fiji, Nauru, Samoa, Tonga and Vanuatu, in a move analysts said was designed to counter Chinese influence.

The purchase takes debt-laden Digicel Pacific out of the hands of Irish billionaire Denis O’Brien, who set up the parent company Digicel Group Holdings in 2001 and will stay on as a director on a Telstra-controlled board.

“Digicel Pacific is a commercially attractive asset and critical to telecommunications in the region. The Australian government is strongly committed to supporting quality private sector investment infrastructure in the Pacific region,” said Andrew Penn, Telstra chief executive.

Digicel Pacific generated $431m in revenues in the 12 months to March 31, and earnings before interest, tax, depreciation and amortisation of $233m from a total of 2.5m subscribers. The majority of its sales came from Papua New Guinea, Telstra said.

O’Brien said the sale of Digicel Pacific marked a “very successful realisation” of his group’s investment in the South Pacific region, which it began in 2006. Digicel added in a statement that the deal included a $250m earn-out clause in addition to the $1.6bn reported by Telstra.

Telstra shares were up as much 2.4 per cent in morning trading.

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