Lesley Stones
16 July 2008
Johannesburg — A CONVOLUTED two-part deal for Telkom to shed its 50% stake in Vodacom and sell everything else it owns to a black empowerment group is taking a while to negotiate, prompting Telkom to buy itself more time.
Telkom has updated a cautionary notice first published on June 2, saying the discussions were continuing. That comes as no surprise since the proposed deals involve cleaving Telkom right down the middle.
News that the talks may still reach fruition saw Telkom rise R3 to an intra-day high of R134 yesterday - still substantially less than its R158 when the talks were first confirmed.
One offer on the table would see Vodafone pay R18,75 billion for an additional 12,5% of Vodacom, finally giving the UK operator control over the mobile company. But the deal is conditional on Telkom agreeing to shed the 37,5% of Vodacom it would still hold, by distributing the stock to Telkom's shareholders.
Vodafone's offer was initially described as independent of a second approach by black investment group Mvelaphanda, which wants to take over Telkom but not its Vodacom stake. Yesterday, those two harmonious bids were officially linked, with the cautionary saying Vodafone's offer depended partly on Telkom considering the bid by Mvelaphanda and its proposed financiers, which include the US-based Och-Ziff Capital Management Group.
Details on Mvela's bid are scant, although sources say it offered R90 billion. That has provoked unease among analysts, as Telkom's remaining fixed line assets are worth far more. Mvela's bid works out at R172,80 a share, which was opportunistic when Telkom's value was much higher, said analyst Rhys Summerton of Citigroup. Although R172 a share is a considerable premium to Telkom's current trading price, Summerton said R180 to R185 would be fairer.
Another analyst calculates that Vodacom is worth about R120 billion, valuing Telkom's half-share at R60 billion. Vodafone offers a generous premium, as its bid of R18,75 billion for 12,5% values Telkom's 50% at R75 billion. Since Telkom's market value fell to R68 billion over the past month, the complete entity is clearly trading at a huge discount.
Telkom CEO Reuben September has said he favours selling out of Vodacom as soon as possible. "The two businesses are increasingly competing against each other," he said last month. "The value of Telkom needs to be totally liberated."
If Telkom was 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," he said.
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