Lesley Stones
3 June 2008
Johannesburg — THE shake-up in SA's telecoms sector intensified yesterday, with UK cellular giant Vodafone offering Telkom R18,75bn for a 12,5% stake in Vodacom.
The offer follows local black investment house Mvelaphanda saying it wanted to pick up Telkom's fixed-line operations for R90bn.
The transactions could see Vodacom being unshackled from parent company Telkom and listed as a separate entity through interlinked bids worth R108bn to sever Telkom's fixed-line assets from its cellular operations.
The flurry of activity around Telkom signals further consolidation in SA's telecoms sector after sub-Saharan Africa's biggest mobile phone operator, MTN, said last week it was in talks with India's Reliant Communications over a transaction to create a $66b n emerging markets telecoms group.
Telkom's shares leapt R21 to temporarily hit R158 yesterday, with the 15% spike valuing it at R82,2bn. Yet one analyst said the combined assets were worth far more, so the trading price showed that investors were not convinced the deals would reach fruition. "A share price of around R150 means a lot of people think the deals won't happen," he said.
The government owns 38% of Telkom and the Public Investment Corporation holds 15%.
"There are some risks and challenges," the analyst said.
"The government isn't going to want to see the fixed-line business going to someone who has no understanding of the business or is going to run it into the ground, and is it going to be happy to sell its stake in Vodacom to Vodafone and give up control?" he asked.
Yesterday, the communications department said it had noted the cautionary from Telkom and awaited details.
In October, the department said it "supported in principle" discussions taking place for Telkom to sell some of its assets to MTN. But Communications Minister Ivy Matsepe-Casaburri did not clarif y if the government also endorsed a related plan to sell more Vodacom shares to Vodafone, and the potential deals collapsed before the minister was forced to take a stance.
Vodafone has long wanted to raise its 50% stake in Vodacom and oust Telkom as the joint owner so it can control the cellular operator's future. It proposes to buy 12,5% from Telkom on condition that Telkom relinquishes the remaining 37,5% by unbundling those shares to Telkom's shareholders.
Vodafone does not want to buy 100% of Vodacom as it would quickly have to resell part of the South African operations to black investors in an empowerment deal that would probably happen at a discount.
A consortium led by Mvelaphanda has offered a reported R90bn for Telkom's other assets, in a deal that is dependent on Telkom agreeing to shed its stake in Vodacom.
Telkom describes the bids as "independent", though they are clearly linked. " I think the Vodafone thing is happening," said one internal source. "Telkom has to do something and the only thing it can do is sell Vodacom to Vodafone, then someone else buys what's left."
Telkom is in a closed period ahead of its results announcement next Monday, and is saying as little as possible about the potential deals.
Mvela's bid works out at R172,80 a share, which seemed opportunistic when Telkom's value was much higher, said telecoms analyst Rhys Summerton of Citigroup. Shareholders would think R180 to R185 was a fairer value, he said. Despite the low evaluation, the deal was good as it put pressure on Telkom's management and could see Telkom acquired by people able to restructure it, Summerton said.
Another analyst said it was hard to understand why Mvela was bidding for Telkom without the Vodacom assets, when Mvela could buy the entire group, then negotiate to sell Vodacom to Vodafone at a premium.
If the deals went ahead, Telkom would probably list its remaining 37,5% stake in Vodacom as part of the unbundling, he said, as Telkom's numerous individual investors would not want shares in an untradable entity.
The analyst believed Vodacom was worth about R120bn, valuing Telkom's half-share at R60bn, or R65bn if it sold out to Vodafone at a premium, he said. Based on that assessment, Vodafone is already offering a generous mark-up, with its bid of R18,75bn valuing a 50% stake in Vodacom at R75bn.
That accounted for practically all of Telkom's market capitalisation of about R80bn, showing that the combined entity was clearly trading at a massive discount, the analyst said, so listing Vodacom separately would unlock value.
With Reuters
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