Axian, the Madagascan telecom firm that’s in a partnership with former Telkom CEO Sipho Maseko to acquire a controlling stake in South Africa’s third-largest mobile network operator, considers this country an attractive investment destination as it seeks to grow its footprint in Africa.
It has set itself the ambitious goal of becoming the fifth-largest mobile network operator on the continent in the next five years, and aims to make acquisitions in three more countries.
Business Times understands from people close to the company that it has carefully studied Telkom and considers it the perfect acquisition target in the implementation of its aggressive pan-African strategy.
Created in 2004 out of the privatisation of Telma — Madagascar’s state-owned telephone operator — and headquartered in Mauritius, Axian has teamed up with Maseko’s investment vehicle, Afrifund Investments, in a R12bn bid to buy 35% of Telkom.
The consortium is working hard to convince the South African government, which holds 40.5% of Telkom, to agree to cash in through a significant dilution of its shareholding. It’s also understood that work is under way behind the scenes to convince the Public Investment Corp (PIC) — which has a 14.1% stake — to agree to a joint bid that would put the consortium in pole position to acquire effective control.
It’s either you enter through small players and study the market before making a big acquisition or you enter with a big player
— Insider at Axian
The PIC said on Friday it would not be drawn into speculation on matters that are market sensitive involving investee companies.
“Any investment proposal to the PIC in respect of Telkom would be considered on its merit, if it is supported by a credible business case, meets return expectations and the mandate requirements of the PIC’s clients,” Africa’s biggest fund manager by assets under management said in a statement.
An insider at Axian, who spoke on condition of anonymity, said they are keen on acquiring businesses with significant infrastructure, especially those with strong tower assets, fibre and data centres.
Commenting on expansion plans in Southern Africa, the source said most companies that want to be a pan-African operator will always be attracted to South Africa because it is a well-rated country, with strong financial markets and a dynamic telecommunications sector.
“It’s either you enter through small players and study the market before making a big acquisition or you enter with a big player.”
Telkom was the subject of a takeover bid from competitor MTN as part of a major telco consolidation drive, but talks collapsed last year for various reasons, including concerns that the deal would not pass regulatory scrutiny. Rain, the high-speed data operator, also wanted to merge with Telkom, but the parties terminated the discussions earlier this year.
Telkom has been looking for buyers for some of its units as part of unlocking value, a strategy that was started by Maseko before he retired in 2021, after almost nine years at the helm.
The strategy involves selling equity in some of its subsidiaries to bring in shareholders that will open new growth opportunities, repair the balance sheet and reduce costs.
Sources with intimate knowledge of the proposed bid said the aim was to give Telkom exposure to markets that Axian operates in by combining the infrastructure assets of both companies to create a strong competitor to continental giants such as MTN and Orange.
The Axian group is owned by the Hiridjee family, who originally settled in Madagascar 150 years ago and set up business in the textile industry. The group now has interests in telecommunications, energy, financial services and fintech.
Its telecom business has been expanding over the years, acquiring stakes in mobile operators on the islands of Réunion, Comoros and Mayotte, a French archipelago in the Indian Ocean between Madagascar and Mozambique.
Axian also rapidly expanded to West Africa, acquiring controlling stakes in telecom businesses in Togo and Senegal. It ventured into East Africa with the acquisition of Tigo Tanzania, Zanzibar Telecom and a tower business in Uganda.
The bid for Telkom was proposed to its board in early March and the consortium subsequently held meetings with some executives and the chair, Geoffrey Qhena.
It is understood there is resistance from some on the board, but the consortium is forging ahead.
“It is now up to the board to be independent and exercise what is good for shareholders, not for the board or management,” a source with knowledge of the talks said.
Another insider also urged board members to act in the interests of the company.
“From regulatory hurdles, there are no competition issues and there are anchor shareholders that will stand behind the company to help it compete across the continent,” the insider said.
“Independent directors must really exercise their independence for all shareholders, not just themselves. Ultimately that’s why they are there.”
The Telkom story remains one of valuable infrastructure assets that are currently not generating enough operational cash returns for shareholders, and the balance sheet is likely to continue to deteriorate if the group remains on its current path
— Peter Takaendesa, head of equities at Mergence Investment Managers
Should Telkom’s board reject the offer, the consortium plans to approach shareholders directly. If the deal succeeds, Telkom will remain listed but will sell its subsidiary BCX, which provides technology services to companies.
Telkom declined to comment when contacted this week. But group CEO Serame Taukobong told the Financial Mail the company was not for sale, insisting it has a future as a standalone firm.
“I think the biggest misconception is that there is a big ‘for sale’ sign outside Telkom ... that we’re on a fire-sale journey [with] the sentiment that Telkom needs a saviour, a knight in shining armour to save it,” he told the publication.
Axian could not be reached for comment.
The consortium believes “there is quite a lot of value that is trapped [in Telkom] and needs to be unlocked. Shareholders need to benefit from the unlocking and participate on the upside as the valuation of the company rerates,” the source said.
Telkom’s share price has taken a knock in recent months after it warned shareholders that it expects a substantial drop in earnings for the financial year to March, and that it will impair the value of its assets by R13bn because of significant market changes and current economic conditions. These include intensified load-shedding, low anticipated economic growth rates and a high interest rate environment.
The stock has declined 7.63% so far this year, giving the company a market capitalisation of R14.1bn.
Farai Mapfinya, CEO and chief investment officer at Aequalis Asset Managers, said Telkom “has a silent moat which for some reason we all do not understand why it does not exploit”.
While Mapfinya doesn’t expect established players such as MTN to make another bid for Telkom for competition reasons, he said the sector is ripe for a consolidated challenger.
“In our view, Telkom, Cell C [Blue Label Telecoms], Rain and perhaps smaller players like Afrihost should band together. We still maintain that if they can’t efficiently pull the four sector levers — price, network quality, distribution and customer care — then Elon Musk should aim for Pluto, not Mars, at the least.”
Mapfinya described Maseko as a “shrewd operator, and I doubt anyone thought his departure from Telkom meant a quiet retirement somewhere”.
Peter Takaendesa, head of equities at Mergence Investment Managers, said Telkom needs a different growth path to sustain the relevance of its business in the market for the long term, and that probably requires partnerships or industry consolidation.
“The Telkom story remains one of valuable infrastructure assets that are currently not generating enough operational cash returns for shareholders, and the balance sheet is likely to continue to deteriorate if the group remains on its current path,” he said.
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