IT GETS DARKER ALL THE TIME IN TELKOMLAND: THE HIGH COST OF TELCORDIA DISPUTE

Mergers, Acquisitions and Financial Results

Last week, this column noted how Telkom had been roughed up by the Supreme Court of Appeal, and how it now faces the very real prospect of paying up to R2bn to US software company Telcordia. But as Jackie Selebi's advisers should be telling the embattled police boss, the situation is a tad more horrendous than it initially seemed.

It turns out that Telcordia, desperate to wrap up the six-year dispute with Telkom, offered to settle the matter in exchange for a payment of as little as $30m, weeks before the Supreme Court of Appeal case.

That $30m is equal to about R210m, or roughly a 10th of the liability that Telkom now faces. But Telkom's lawyers -- and, one assumes, its board -- rejected the offer, and soon after, Telkom was trumped in court.

Now, the matter heads to arbitration to determine the quantum -- and Telcordia wants R2bn, equal to 43% of Telkom's R4,6bn net profit last year. The revelation that settlement talks failed because Telkom's lawyers couldn't compromise make things look awfully bleak for Telkom, its bosses, and its shareholders.

Last week, Telcordia's lawyer, Greg Nott, declined to comment "because negotiations were in confidence and privileged, so I cannot disclose any numbers". Telkom's lawyer, Anton Klopper, acknowledges that settlement talks took place this year, but said the parties were "too far away from each other". "We were engaged in 'without prejudice' settlement talks that went back to July, but the figures were too different," he says.

Klopper denied that $30m was put on the table, suggesting $50m was closer to the mark. However, a source close to the matter confirms the parties "did talk around the $30m figure at the time, and Telkom knows that".

Already, Telkom should be in serious trouble with shareholders for not setting aside a cent for this liability in its financials. It even reversed its 2003 provision of R325m for the dispute.

Now, Telkom may inhabit some Nevernever Land, where it wins all its legal battles and Airports Company baggage handlers wouldn't even steal your toothbrush, but the court judgment made it clear Telkom needed more than a dash of pixie dust to win the case.

So how big a blunder was it that Telkom rebuffed the Telcordia offer of $30m. If Telkom ends up paying 10 times as much, its shareholders should roast it for playing so fast and loose with their money.

Business Day