Fixed-line operator Telkom's empowerment ownership stake appears to have been wiped out after the Elephant consortium sold its shares on the open market.
Apart from direct and indirect investments by government, which total 52.7%, the company does not have a single significant empowerment investment. Stakes held by institutional investors are traditionally discounted by analysts when working out ownership equity.
Telkom and majority stakeholder government will now have to come up with a plan to fill the void left by the consortium. Elephant bought its stake about five years ago from the Public Investment Corporation - government's retirement investment arm.
At the time, the deal was mired in controversy, as Elephant was headed by Andile Ngcaba, former director-general in the Department of Communications. Ngcaba, currently the chairman of dual-listed Dimension Data, was not available for comment this morning.
The consortium also counted among its members other politically associated people such as Gloria Serobe. In addition, then presidential spokesman Smuts Ngonyama was set to receive some shares for helping to put the Elephant Consortium together.
Elephant initially bought about 10% of the fixed-line operator for about R3.6 billion roughly five years ago. Funding was provided by Absa, Nedbank and the PIC, while Elephant put up R40 million of its own cash.
Elephant's stake, at this morning's price of R37.80, was worth about R1.4 billion, based on Telkom's market capitalisation of R19.7 billion. However, the consortium would also have gained from selling 2.5% of Vodacom shares when the cellular provider was unbundled and listed separately last year.
Doyle says the partners made a profit, although this was smaller than the amounts often speculated in the media. Some of the shares will also end up in Elephant consortium hands once the process is complete, he says.
New deal
Telkom says it is in the process of reviewing a new empowerment deal, but has not provided any information as to what form this deal could take, and how many shares it may sell. However, the company has also indicated that it may enter a broad-based empowerment deal.
Telkom has been engaging with the Department of Communications, and the DG in particular, regarding the end of the Elephant deal and will continue to engage them when reviewing the elements of the proposed ownership deal, since the DOC is an important stakeholder.
According to the latest information provided by Telkom in its annual report for the year to March 2010, government owns 39.8% and the PIC 8.9% directly, and an additional 4% through another investment called Black Ginger.
However, Telkom complies with various other sections of the trade and industry's code of good practices. Telkom has an employment equity policy in place, and has incorporated the codes into its procurement strategies.
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Investment decision
Denis Smit, MD of BMI-Tecknowledge, is not surprised that the consortium sold out when it did. He says Telkom's share price has been steadily declining and the consortium's relationship with Telkom would have changed over the past five years.
Smit expects Telkom to restructure its stock position to be able to issue more shares to an empowerment partner. He says this could be an issue for the company in the short-term, but will be resolved in the long-term.
However, considering Telkom's current financial position, Smit is not sure who would invest in the company. In the year to March, turnover from continuing operations grew a mere 0.7%, to R36.8 billion.
Telkom's share price has been trending downwards since May last year, about the time Vodacom was unbundled. The price has moved from R59.40 to its current levels of around R37, where it has ranged since the start of the year.
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