Telkom South Africa double deal flops
Telkom's plans to reinvent itself have been destroyed as talks to sell assets to Vodafone and MTN collapsed this week.
The news was partly a surprise and partly no surprise at all, as many analysts expected a proposed deal with Vodafone to proceed, but a more nebulous deal with MTN to fail.
However, Telkom disclosed that the two deals had been intertwined so axing one instantly killed the other.
Telkom aimed to sell part of its 50% stake in Vodacom, worth about R75bn, to the UK's Vodafone and publicly list some remaining shares. It seemed a clear-cut move, with only the price to resolve.
Yet it apparently hinged on a separate plan for MTN to buy "certain or all of Telkom's fixed-line businesses", which collapsed after the strategic, operational and regulatory aspects were examined.
Earlier this month Vodacom CEO Alan Knott-Craig described the deals as "very complicated". Of the MTN deal, he said: "I wouldn't be surprised if nothing ends up happening. I think almost every company in this country is going to go to the competition board."
Telkom said the MTN deal also failed because anticipated costs did not match benefits. That confirmed market doubts about how MTN would gain by absorbing Telkom's infrastructure, especially as MTN was already laying cables of its own.
The news does not, however, hang up on Telkom's much-needed restructuring.
Its results for the six months to September showed a 19% dive in profit for fixed-line voice calls, emphasising the need to offer combined fixed and mobile voice and data services.
Telkom said it would continue to pursue its options to offer converged services. Vodafone also confirmed it was still interested in taking control of Vodacom to end the unworkable “ménage à trois”. The talks had not ended because of problems between Vodafone and Telkom, but because of difficulties between Telkom and MTN, it said.
Kaplan Equity Analysts MD Irnest Kaplan expected Vodafone and Telkom to revive the share-sale talks. But he was pleased MTN would not attempt to buy anything from Telkom. MTN was interested in Telkom's national backbone, but Telkom probably wanted to foist much more onto MTN, including 30000 staff.
"MTN's shares are labelled internationally as an awesome high-growth operation of choice in Africa and the Middle East. If it bolted on Telkom it would change its whole investment profile," Kaplan said.
"It's very challenging now for Telkom with a lot of uncertainty. We don't know if the Vodafone deal will be resurrected and Telkom has a lot of management posts to fill." Telkom also needed robust strategies to defend its turf against rivals such as Neotel and Internet Solutions, he said.