Oger Puts Spanner in Telkom's Works in South Africa

Mergers, Acquisitions and Financial Results

Telkom's future direction is once again uncertain after the Saudi operator Oger Telecom disclosed that it had bid for a stake in the business. Oger Telecom's parent company Saudi Oger owns 60% of SA's struggling third cellular network Cell C, and the potential investment carries an expectation that Telkom would forge a far closer relationship with Cell C to help it finally clear a profit.

Telkom's shares gained more than 10% yesterday, yet analysts said the bid was probably unsolicited and was probably not to Telkom's advantage. "Oger Telecom submitted an offer which we believe to be in the interest of both Telkom and Cell C," said Oger Telecom CEO Paul Doany. "We hope to see progress with this soon."

What lends the move more credibility is that Doany was based in SA for several years after Cell C launched in 2001, making him au fait with Telkom's strengths and weaknesses.

Doany did not specify what size stake Oger Telecom is chasing, nor how much it has offered. If the deal went ahead it would be structured like its activities in Turkey, where it paid $6.5bn for 55% of Turk Telekom, and gained a controlling interest in the mobile player Avea.

Telkom issued a statement last week saying it would consider the "non-binding expression of interest" from Oger Telecom, along with other alternative options to enhance its converged fixed and mobile services.

Cell C's failure to turn a profit often prompts speculation that the Saudis will bale out. Instead, the tactic seems to be to help Cell C gain faster and cheaper access to Telkom's fixed line infrastructure that the cellphone operators rely on.

The bid comes in the wake of aborted talks for Telkom to sell part of its 50% stake in Vodacom to the UK's Vodafone -- which already owns the other half. That was cancelled when Telkom failed to agree a tie-up with MTN, so the gap created by selling its mobile assets would be plugged with the more impressive reach of MTN.

Yet the offer might go ahead if Telkom's stakeholders -- such as the government with 38,9% -- wanted an exit strategy, he said. "For Oger it makes a lot of sense. Cell C is struggling, and with a stake in Telkom it could do a lot better because it could collaborate to offer converged services."

Business Day