Mergers, Acquisitions and Financial Results

It has not been a good week for the two bidders for the SNO franchise in South Africa. Many of those who are attacking the process have vested interests but the continued criticism is beginning to undermine the process. Below is a summary of the onslaught:

  - A damning report on the two bids for control of SA’s second telephone network operator should prompt the adjudicators to reject both, says the operator’s black empowerment stakeholder, Nexus.Business Day says this "lends weight to suggestions by local stakeholders Transtel and Eskom Enterprises that the operator should go ahead without Optis or Goldleaf, which are bidding for a 51% stake".

- Consultants analysing the two bids to control SA’s second fixed-line telephone operator have tacitly accused MTN of poisoning the business plan of contender Goldleaf in order to protect itself from competition. MTN says the allegations against it are far-fetched, unfounded and counter-intuitive.

Arif Hussain, MTN’s GM for strategic investments who has been working closely with the Goldleaf team, says MTN would like to see a strong competitor to Telkom because such an SNO would be to its advantage. He also rejects the implication that MTN could have influenced the Goldleaf business plan to any great extent, saying the Premier Contracts Agency was responsible for the plan and would have rejected any "poison" MTN attempted to introduce.

- A report commissioned by the regulator ICASA from the Next Generation consortium released on Friday implies (according to ItWeb) that MTN is responsible for Goldleaf adopting its "SNO lite" model and says this may irreparably stunt the second national operator (SNO) while keeping it from competing with MTN. The Optis consortium comes off the worst in the general analysis, which leaves little room to imagine that its bid could still succeed. The consultants find that Optis misled ICASA by presenting work by Siemens as its own and continued to withhold important information throughout the bid process.

The report also again highlights issues such as the involvement of 18-year-old Warren Friedland as the biggest shareholder in Optis. Because Friedland, who is still a minor, signed much of the legal documentation that established the Optis shelf company, the bidding entity may not have any official existence.

It is no less critical of Goldleaf. According to Next Generation group: "Against the background of the licensing fee requirements of R300 million, the performance guarantee requirement of R50 million and the fact that both the applicants are unfounded cash shells, neither applicant has shown that it could commence business if awarded the licence on 31 January 2003."

- More depressingly Moneyweb suggests that given that Next Generation, the consultants to Icasa on the second national operator (SNO), have dismissed the two bidders for the 51% "strategic equity partnership" stake as inadequate, the chances are looking pretty likely that there will not be a winner.The implications of this outcome for the country as a whole are undoubtedly serious, and include the further extension of Telkom’s monopoly position.

- ICASA’s Siyabonga Madyibi conceded that not finding a winner would be a very unfortunate outcome: "The implications will be quite serious on the economy, quite serious for investors and, because it will seriously dent investor confidence in the country if a no-bid situation were to arise." Although this had not yet been explored as an option, Madyibi said it was probably not out of the question for the three existing shareholders, Transtel, Esi-Tel and Nexus, to continue without a strategic equity partner. "There is no framework that is in place that basically sets out what should happen if a no-bid situation was to arise. But, yes, what you have outlined is certainly one of the options that could be exercised," he said.

Madyibi said the failure to secure a 51% applicant would cast some uncertainty over the valuation of Telkom: "I do not think the IPO will be held back necessarily, but I think it will create uncertainty in the minds of investors," he said on Classic Business.

ICASA is set to decide on 31 January 2003.