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How will Council vote on the proposed Southern Phone sale?

Last week we saw the announcement that Southern Phone, one of the largest telecommunications companies in regional Australia, has entered into a conditional agreement under which AGL Energy Limited (AGL) is proposing to acquire 100% of the company.  The announcement came on Wednesday the 16th of October, 2019, a day after the Eurobodalla Council prepared its agenda for the upcoming meeting next Tuesday. The announcement is significant for the Eurobodalla Council and its ratepayers with the AGL offer being an all cash offer of $27.5 million, delivering an outstanding return of $785,714 on each shareholder’s total investment of $2.  Eurobodalla Council (and therefore its residents and ratepayers) are one of 35 shareholders. In making the announcement Southern Phone Managing Director, David Joss said that given our shareholders are all local Councils, the proposed acquisition by AGL presents a great opportunity for the Councils to utilise the return to address priorities facing their local communities.  Immediate concerns following the announcement rippled through the community over the future of the Southern Phone facility in Moruya that employs a high number of youth in the region. David Joss offered in the announcement “AGL is committed to maintaining the Southern Phone brand and products, as well as the existing business operations and telecommunications services to our 100,000 customers, across regional Australia. Importantly, AGL will continue to retain the Southern Phone team."  Mr Joss said that the Southern Phone Board unanimously recommends shareholders accept the AGL offer. 

As a shareholder the Eurobodalla Council will need to vote on whether they support the proposal on behalf of their community. As the announcement came after the next Council meeting agenda was agreed the issue will either arise during the next Council meeting as a Mayoral Minute or as an Urgent matter depending on when the shareholders need to cast their vote by. Council might choose, however, to hold off until November 11th in order to receive a briefing from staff. There will be several questions around their decision on whether they support the proposed sale. While the one-off return of $785,714 might be inviting Council had enjoyed an annual dividend from Southern Phone in excess of $100,000 ($113,000 in 2016, $146,000 in 2017) Projecting such returns would see the $785,714 average dividend return exhausted by Year 5 leaving the Council $150,000 less off each year thereafter. . What did Council do with the dividends?

In June 2106 Council said that their key financial strategy was to generate an operating surplus which, once combined with dividends from Water and Sewer Funds and Southern Phone, would be transferred into an infrastructure renewal fund. This plan was to ensure that they remain Fit For The Future as required by the NSW State Government. By using the Southern Phone dividend Council planned that the infrastructure renewal fund will then finance the required annual infrastructure renewal requirements and as a result, reduce the backlog saying "This will meet the Infrastructure and Service provision indicators. The financing of works may require topping up with external borrowings in years with significant renewal requirements." It appears now that the 'topping up' might now require $150,000 from elsewhere in five years time if they support the sale. Meanwhile Eurobodalla Council is only one of 35 councils and there is little doubt that those council's would enjoy the windfall. One fact that will weigh heavily on their vote is that the company has not paid a dividend for the year ended June 2019 and a dividend is not expected. With the possibility of Council discussing this matter next Tuesday under an unpublished Mayoral Minute or as an item of Urgent Business the community are not able to be formally advised via a printed Agenda that it is an upcoming agenda item and, as such, not allowed to present on the issue in Public Forum. And should a councillor be aware that the item will come up as a Mayoral Minute or under Urgent Business they are not permitted to tell you.

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