Lesley Stones
10 June 2008
Johannesburg — A LONG-overdue split between Vodacom and its parent company Telkom is now inevitable, with the CEOs of both companies clamouring for freedom.
Telkom CEO Reuben September and Vodacom CEO Alan Knott-Craig told analysts yesterday that the cellular operator's dual ownership by Telkom and the UK's Vodafone was bedevilling all three.
Although September did not give further details of a proposal to sell part of Telkom's stake to Vodafone, he is in favour of shedding the business as quickly as possible.
Departing from his usual noncommittal stance, September said: "The shareholders' agreement doesn't put Telkom in a position where it can grow its business. The two businesses are increasingly competing against each other. The value of Telkom needs to be totally liberated."
If Telkom were free to partner with any mobile operator or to build its own wireless network, it could offer a full range of services in its own right, without the "unnatural impediment" of being shackled to Vodacom. "Telkom could come into its own if it would participate in the market fully as a stand-alone entity," September said.
Until now, only Knott-Craig has objected to the constraining relationship. Yesterday he was even more critical than usual, enjoying the freedom to be particularly outspoken after announcing plans to resign as CEO in September.
"The way our shareholding is structured isn't helping anybody. It's not helping Vodacom, it's not helping Vodafone and it's not helping Telkom," he said.
"Something has to give. If you want to unlock the potential these companies have you have to shake things up."
Vodacom was prohibited from acquiring companies in SA to expand its services because Telkom was its owner, and the competition authorities frowned on the expansion of such dominant players, he said.
Nor could it make acquisitions in other African countries, as Vodafone wanted those countries open for its own expansion.
Attempted acquisitions had been unsuccessful because its shareholders had their own aspirations, Knott-Craig said.
Vodafone has bid R18,75bn for 12,5% of Vodacom's shares, on condition that Telkom takes itself out of the picture by distributing the remaining 37,5% to its shareholders.
At the same time a consortium led by Mvelaphanda has offered a reported R90bn for Telkom's other assets: a huge national network infrastructure and operations in Nigeria and Kenya.
Analysts describe Mvelaphanda's bid of R90bn for the fixed line assets as under-priced. September agreed that price could be a stumbling block for the proposed deal. "A premium has to be put in its true value," he said.
Although Vodafone is the party preventing Vodacom's foreign expansion, Knott-Craig thinks that restriction would be scrapped once it took control. Vodafone would probably bow to Vodacom's experience and let it handle the African portfolio, he said. "It's likely Vodafone will use Vodacom as its management vehicle in Africa and that will be great for Vodacom."
Dual ownership has also impeded empowerment. Vodacom intends to place shares worth R7,5bn with black investors and the public.
Neither Telkom nor Vodafone has been keen to relinquish any shares because of the deadlock between them. "At the moment we can't do anything because anybody who gives up even a fraction gives up control," Knott-Craig said. "Once the deadlock of 50-50 ownership is unlocked it becomes possible to do lots of things."
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