Still hope for Telkom sale

Johannesburg, 27 Aug 2008

Telkom has confirmed that talks with Mvelaphanda Holdings and, separately, Vodafone are ongoing.

The telecommunications giant yesterday issued two separate cautionary notices, informing shareholders that discussions are still under way. While the company has been trading under cautionary since June, this is the first time Telkom has split the information on the two deals.

The company's JSE announcement made it clear Telkom wants the deals to be considered independently of each other. The notice to shareholders says: "The discussions with the consortium are independent of the discussions with Vodafone Group, which are referred to in a separate cautionary, regarding the acquisition by Vodafone's wholly-owned subsidiary of a portion of Telkom's stake in Vodacom Group."

Telkom first acknowledged a bid from a consortium, made up of Tokyo Sexwale's Mvelaphanda Holdings (Mvela), affiliated funds of Och-Ziff Capital Management Group and "other strategic funders", at the beginning of June. In line with JSE regulations, Telkom subsequently re-issued its cautionary on 15 July.

Neither company has confirmed the value of the bid; however, media reports have indicated Mvela could pay as much as R90 billion for the entire share issue. At market close yesterday, Telkom's market capitalisation was at just over R70 million.

While the deal has, to some extent, lost the interest of the market, a source close to the deal between the consortium and Telkom says discussions are progressing well. The re-issued cautionary notices yesterday bring shareholders hope that the sale may still proceed.

Decisions, decisions

However, Frost & Sullivan ICT industry analyst Lindsey Mc Donald says Telkom needs to decide what it will do with its stake in Vodacom in order for the deal with the consortium to go through.

Telkom's cautionary on Vodacom yesterday says Vodafone is only looking for a part of Telkom's stake in Vodacom and asking Telkom to redistribute the rest of its stake to Telkom shareholders.

The deal with Mvela also has attached conditions, which includes Telkom unbundling its stake in Vodacom. This means Telkom can unbundle its stake in Vodacom in whichever way it chooses; however, it must be unbundled for the deal to go through.

Separating the two cautionary notices could also indicate Telkom may consider ridding itself of its Vodacom stake without following through on an outright sale of itself.

Mc Donald believes a sale of the Vodacom stake would be beneficial to both players. "There are other options for Telkom to pursue regarding converged mobile services," she comments.

Other options

Meanwhile, she points out that additional suitors could line up for the fixed-line giant. For instance, speculation continues to circulate that Kuwait-based cellphone group Zain could make a play for Telkom.

She says, while the suggestion is a shot in the dark, Zain may well have better options to procure Telkom's Vodacom shares, or what may remain of the shares, should the deal with Vodafone go through.

Vodacom could benefit from the change in shareholding. Outgoing Vodacom CEO Alan Knott-Craig previously stated the Vodacom shareholding has hindered executive decisions about the company's future.

Mc Donald says Telkom could refocus itself without Vodacom and Vodacom could start including other products from Vodafone. "Vodacom could use shareholders with the same vision."

However, Mc Donald says it depends on two things: "What does Mvela want with Telkom and what does Telkom want to achieve?"

Telkom's share price closed a marginal 0.18% down after yesterday's announcement.

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