Australian Defense Dept gives nod to SingTel bid

SingTel's takeover of Optus moved a step closer Friday with Defense Dept approval

By CNN's Geoff Hiscock, Asia business editor

SYDNEY, Australia (CNN) -- Australia's Defence Department gave the go-ahead Friday to Singapore Telecommunications' takeover of Australian telco Cable & Wireless Optus.

The approval comes after the two telcos signed commitments with the department agreeing to protect sensitive defense communications systems.

SingTel launched a $8.6 billion takeover bid for Optus, Australia's second-largest telco, on March 26 this year.

The bid must still win approval from Australia's Foreign Investment Review Board.

The defense implications of the deal had been seen as a potential stumbling block.

Optus, which is owned 52.5 percent by Britain's Cable & Wireless, operates satellites whose users include the Australian military.

Deed of agreement signed

But late on Friday, the Defence Department announced the two groups had signed a deed of agreement that would come into force only if the takeover went ahead.

The department said it had obtained contractually binding conditions on Optus and SingTel to protect Defense communications and to protect Defense investment in telecommunications infrastructure.

It also said the U.S. Office of Defense Trade Controls had been advised of the agreement.

According to the department, the agreed measures include "compartmented operations, protection of sensitive information, step-in powers and guarantees of performance backed by substantial company capitalization."

Agreement should lead to bid's approval

The Defence Department said the measures were part of short- and long-term steps to protect defense communications "in an environment of proliferation of multinational ownership in Australian telecommunications."

The defense agreement is expected to clear the way for the SingTel bid's approval by the Foreign Investment Review Board.

In Singapore, SingTel traded 1 percent up at S$1.88 late on Friday. In Sydney, Optus shares closed up 6 cents or 1.64 percent to A$3.71.