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Telstra gains on buyback plan
(CNN) -- Shares in Australian phone giant Telstra have jumped after it said an off-market share buyback of up to Aust. $1 billion ($680 million) would be priced at a premium of up to 12 percent. The shares closed Friday at $4.99, a gain of 3.3 percent and the highest since September 9. Telstra plans to buy between A$800 million and A$1 billion of its own shares through the off-market tender process. The telco, which is 50.1 percent owned by the Australian government, is Australia's most widely held stock with about 1.8 million shareholders. The government, which has already said it will not take part in the buyback, is committed to the full privatization of Telstra. But a final selloff is seen as some way off. It began the privatization process in November 1997, selling 33 percent at A$3.30 a share. But many of Telstra's current shareholders are in the red, having bought stock at A$7.40 when the government offered a second tranche of 16.9 percent in October 1999. Under the buyback, which Telstra first announced in August, shareholders can tender to sell their shares at a price ranging from A$4.20 to A$5.40, or accept a final tender price to be set on November 25. The top price represents a premium of 11.8 percent to Thursday's closing price of A$4.83, while the bottom price is a 13 percent discount. The buyback also will bestow extensive tax benefits on participants. Telstra CEO Ziggy Switkowski said shareholders who took part would receive a fixed capital amount of A$1.50 a share, with the remainder as a fully franked dividend -- meaning the tax has already been paid on this portion. Shareholders who bought shares at A$7.40 in 1999 will be able to claim a tax deduction on a large capital loss of A$5.90 a share. "The market was expecting a large component of the buyback to be a fully franked (tax-paid) dividend. The market's up on the confirmation of the expectations," Shaw Stockbroking analyst Scott Marshall told Reuters news agency. Despite two years of declines, Telstra remains one of the biggest and most profitable carriers in Asia. It said in August its full year sales to June 30 rose 0.5 percent to A$19.9 billion, while net profit fell 6.3 percent to A$3.4 billion on a big writedown of its investment in Hong Kong-based Reach.
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