Telkom, MTN deny talks

Telkom has once again quashed speculation that it may ditch its 50% shareholding in Vodacom, with a view of looking for another mobile operator partner.

Recent reports in the media have indicated Telkom may sell its shareholding in Vodacom and consider purchasing a controlling interest in the MTN Group. It was also reported that Telkom and MTN may have held informal talks to discuss the possibility of Telkom purchasing controlling shares in the MTN Group.

"Telkom is not aware of any moves in that direction," says Telkom spokesperson Lulu Letlape.

MTN has also denied holding informal discussions with Telkom. A spokesperson points out that as a listed company, it would have to first issue a cautionary if the group were to hold such discussions with Telkom.

An analyst who has asked not to be named says if Telkom were to sell its Vodacom shareholding, and buy out MTN, it would be a phenomenal transaction. Banks would line up to offer Telkom financing, he says.

Telkom's war chest consists of reported revenue of R48.3 billion for the year ended March 2006, up from R43.7 billion the previous year. The company reported profit for the year of R9.3 billion, compared to R6.8 million the previous year, with cash and cash equivalents of close on R5 billion, up from last year's R3.2 billion.

Some R1.83 billion is listed as cash and bank balances, and a further R3.1 billion is listed as short-term deposits. Telkom also has unsecured, undrawn borrowing facilities totalling R9.5 billion.

Vodacom's market capitalisation is not fully known, as a result of its unlisted nature. However, based on the price that Vodafone paid for the Venfin stake, it could be anywhere between R80 billion and R100 billion, says the analyst. No one is sure whether this was a premium or discount price, he says.

Apart from Competition Commission concerns over Telkom owning both of SA's two largest mobile operators, if Telkom sold its 50% stake to Vodacom, it would have a large chunk of cash.

On the other hand, the MTN Group, which has a market capitalisation of about R100 billion, also does not have a majority shareholder, the analyst notes. That means Telkom would be unable to buy it "lock, stock and barrel", and buying up the shares on the open market would push the price up, he adds.

The analyst says the key to whether Telkom would sell its Vodacom shareholding lies in understanding Vodafone's strategy on the African continent. However, he sees it as a "far-fetched" concept.

Major players have denied recent market speculation that Vodafone was keen to get its hands on the rest of Vodacom.

Telkom has also said it offered to purchase Vodafone's shareholding in Vodacom, and that the UK-based company refused, stating it wished to remain a key player locally.

Telkom and Vodafone are understood to be in talks about this shareholders' agreement, which restricts Vodacom from going north of the equator. As Telkom is in a closed period, it is unable to provide feedback regarding the meeting with Vodafone, which was supposed to have taken place last week.

Additionally, Telkom has made it clear that it sees Vodacom as a revenue-rich and stable source of growth for when its fixed-line revenue comes under threat from Neotel.

However, the analyst says there is a global move for telecoms companies to divest from their mobile interests. Buying MTN would allow Telkom to retain its mobile income and fulfil its African expansion plan, he says.

Including SA, MTN has operations in 21 countries in Africa and the Middle East.

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