Mergers, Acquisitions and Financial Results

Telkom's share gained 1.4% on Thursday after news that the state asset manager had agreed to sell a 10.1% stake in Telkom to a consortium led by former communications director-general Andile Ngcaba.

The share closed at R110.05, up R1.55 on the previous day's close. The share's highest close to date was R115.50, reached in mid-March. On the same day the share reached a 12-month high of R117 in intraday trade.

The Public Investment Corporation (PIC) announced that it was selling a 10.1% stake in Telkom to Ngcaba's Elephant Consortium at R92.50 a share. The PIC had been warehousing a 15.1% shareholding in Telkom on behalf of the consortium since November.

The PIC, which invests funds on behalf of public sector entities, added that it would retain the remaining 5% stake.

Ultimately, however, the Elephant Consortium will end up with just 6.7% of Telkom, which will be shared equally between Ngcaba's part of the consortium and the other consortium partner led by Women's Investment Portfolio Holdings (Wiphold).

Part of the agreement with PIC involves the consortium agreeing to allocate 3.37% for further broad-based economic empowerment. The PIC said a committee composed of the PIC and the Elephant Consortium will be established to implement this agreement over the next three months.

Commentators have said that this aspect of the deal indicates that the PIC did not believe the consortium was sufficiently broad based from an empowerment perspective.

The PIC added that it, Absa and Nedbank have agreed to fund the consortium's 6.7% stake by committing varying amounts of funds totalling R3.6 billion.

The PIC has disclosed that it realised a return of about R1.5 billion by warehousing the stake and acquiring the 5% shareholding, translating to an annualised return on investment of 78%.

“This is good news for our clients, in particular the Government Employees Pension Fund,” it said.

The PIC agreed in November to warehouse the stake, originally held by the Thintana Consortium, amid controversy over plans by the Elephant Consortium to buy the shares.

At the time, the consortium approached the PIC and other funders for finance, and, after some negotiation, the PIC agreed to buy the stake and open talks on how the consortium would acquire the shares from the PIC.

Ngcaba said at the time that his consortium had had very little time to close the deal, so it opted for short-term warehousing.

An analyst says the share has reacted positively to the deal mainly because the uncertainty about what would happen to the stake has finally been cleared up.

He adds that he cannot see that the deal has altered Telkom's empowerment profile to any significant degree, since the PIC itself would have counted as a broad-based shareholder. “The 3.37% share going to broad-based empowerment looks pretty good now, but otherwise it's just the same high-profile faces.”