Nigeria: Starcomms Moves to Acquire Telkom Multi-Links

Mergers, Acquisitions and Financial Results

Nigerian Code Multiple Division Access CDMA operator, Starcomms, is negotiating to close a deal that will enable it acquire the troubled Telkom Multi-links.

ThisDay gathered that the deal was nearing completion but was being hampered by cost of sale considerations as both parties were negotiating to agree on a final sale that will be agreeable to both parties.

Sometime in January 2010, the Telkom's board was said to have rejected a proposal by former CEO, Reuben September, to merge Multilinks with Starcomms. But with the exiting of Telkom from the Nigerian CDMA market, the firm is said to be in negotiations with Starcomms in its bid to acquire Multilinks. If the acquisition sails through, it would give Starcomms which had lost market share to Visafone, a chance to recover dwindling subscriber numbers.

Since Telkom, announced that it was exiting the Nigerian market in November last year, it was said to have gotten strong offers from Etisalat Nigeria, whose CEO Steve Evans later said the company was not interested in Multi Links.

Visafone was also said to have made a bid for Starcomms, but the bid could not be concluded because the parties concerned could not agree on the right cost. Sources however disclosed that Visafone has not given up on the deal and was still in the picture.

The fact that Telkom wants to hold on to the company's backbone, the fibre optic cable infrastructure transmission network estimated to be over 8,200 kilometres is a major obstacle to the sealing of the deal, as Telkom is said to have refused adding the cable infrastructure to the sale.

Ever since, the South African, Telkom acquired Multilinks for a total of $401 million in 2009, the company has not been able to make profit and this inability finally led to the South African fixed line Telkom getting fed up of constantly shoring up the company.

The Acting CEO had late last year informed Nigerians that Telkom gave up on Nigeria because it has become financially difficult for the firm to continue doing business in that segment due to the high competitive Nigerian operating environment. He stated that the firm's subscriptions and connections revenue decreased 18.2 percent due to the termination of access fees as a result of increased competition.

He stated that despite comprehensive turn around programmes embarked upon by Telkom, Multi-links Nigeria has continued to operate at a loss and the Telkom Group in March 2010 had to write down $1.2 billion in losses for Multi-links Nigeria, eroding confidence of shareholders in the capacity of the firm to make a headway in the Nigeria market which is highly dominated by GSM operators. He said that though Multi-links made a lot of strategic efforts to turn around the fortunes of the firm including substantially lowering its tariffs, yet was unable to break even. It was still saddled with an underutilized network of just 2.6 million subscribers, when it had a capacity for 10 million subscribers. He said a number of factors including the global economic meltdown contributed to the woes of the firm. He said that fact that GSM operators were getting more aggressive, in addition to increasing competition within the CDMA market also negatively affected Multi-links. The firm's operating revenue decreased by 1.7 percent in 2009. It also recorded a 39 percent decrease in Earnings Before Interest, Taxes, Depreciation, and Amortization EBITDA from -3,214 million to -4,456 same year. Traffic revenue also decreased by 24.6 percent due to decrease in traffic volumes and higher churn rates.