Telstra has gone ahead with its purchase of the Kaz Group, shelling out A$333m ($250m) in a bid to become a major player on the Australian IT services scene.

The purchase price ended up lower than the A$400m figure tossed out earlier this week by Aussie media outlets. The deal combines the seventh (Telstra) and eighth-ranked vendors in the Australian services market valued at close to A$12bn. Giants such as as IBM, HP, EDS and CSC dominate the IT services realm here.

"The combination of KAZ and Telstra's current managed services activities will create a profitable business unit with initial revenues approaching $1bn per year." said Ziggy Switkowksi, CEO of Telstra.

Some local IT pundits warned that the size of telco giant Telstra could have a negative effect on Kaz's operations. Kaz receives top marks for paying close attention to the needs of local firms - something Telstra is not equally as well known for.

But one positive for current Kaz customers comes from Telstra's plans to operate Kaz as a stand-alone business. Current Kaz CEO Peter Kazacos will head up the business.

Kaz's directors unanimously approved the deal, which pays investors A40 cents per share - 4.5 cents more than Kaz's closing price at the end of last week. Trading of Kaz shares was halted yesterday after speculation of a Telstra buy popped up.

The transaction must meet standard regulatory approvals. Shareholders are expected to vote on the deal by late June.

Telstra is currently the 14th largest global telco with revenue of close to A$20bn per year. The Australian government holds a 51 per cent stake in the company and has been trying to sell its share for some time, although the Aussie Labor Party, along with others, has opposed the sale. ®

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