A consortium led by former Telkom CEO Sipho Maseko presented an offer of R46 a share for a controlling stake in South Africa’s third-largest mobile network, but this was immediately rejected as too low and not in the best interests of Telkom shareholders. But Business Times understands from well-placed sources that the parties are still in discussions and a revised offer has been presented which is not materially different from the original one.
However, rival network MTN could also revive its interest in a total takeover of Telkom, a move that could present further headaches for Maseko’s Afrifund Investments and its partner, Madagascar-based Axian Telecom. Maseko’s consortium made a R12bn bid for a 35% stake in Telkom in March. It also wants to convince the South African government, which holds 40.5% of Telkom, to agree to cash in through a significant dilution of its shareholding.
The Public Investment Corporation, which has a 14.1% stake, is being cajoled to agree to a joint bid that would put the consortium in pole position to acquire effective control. Axian, which is registered in Mauritius, has pledged R9bn, with Afrifund covering the remaining R3bn. The plan is to create a pan-African telecommunications infrastructure operator as Axian has set itself the ambitious goal of becoming the fifth-largest mobile network operator on the continent in the next five years; it aims to make acquisitions in three more countries.
Sources close to Telkom and the consortium said the initial offer was about R46 a share, but the consortium was sent packing by the board and the mergers & acquisition team, who felt it was not in the best interests of shareholders. When the consortium bid for Telkom early in March, its share price was R38.
“They offered a 20% premium on the R38 that Telkom was trading at when the bid was submitted on March 10,” an insider said. He denied the offer was rejected, saying the company requested more information about members of the consortium and the funding at their disposal. This information has since been provided and the bid is being re-assessed.
“The last thing to be finalised is pricing, which is informed by due diligence. The hope is that there will be an independent assessment of that offer and it will be referred to shareholders as it is ultimately them who will sell their shares.”
The Telkom share price has dropped sharply after it issued a trading warning that profits would plunge as a result of asset impairments of R13bn. By late Friday it was trading at R29.81, giving it a market cap of R14.6bn. Another source close to Telkom said the board raised doubts about Afrifund’s ability to raise the R3bn and sought guarantees. “Telkom is looking for a written guarantee of funds backing the bid.
“They got a letter from Nedbank which was conditional on the bid making sense, but it was not a guarantee of funding. Telkom didn’t like that.” The consortium wants control of the whole company but is expected to dispose of Telkom’s ICT subsidiary, BCX. Maseko could not be reached for comment. With the crash in its share price, more companies are expected to make a move for Telkom.
Our strategic positioning for the medium term remains that there is a sensible deal that could be had, but deals are complex
— MTN CEO Ralph Mupita
Business Times understands that MTN is mulling another bid. Sources close to the company said there was still interest in Telkom in support of the strategy of consolidation. But having been burnt the last time, MTN is cautious about when and how to make a fresh bid. The mobile network giant made an offer to buy 100% of Telkom last July but withdrew it after rival operator Rain made its own approach and proposed a merger between it and Telkom instead.
At the time, MTN offered about R60 a share, valuing Telkom at R30bn. Some at Telkom still believe MTN could offer more than what the Maseko-led consortium has placed on the table, but there are doubts it would be anything close to R60 a share given Telkom’s current financial woes.
“Telkom is trying to court them back. Shareholders know they will get a better deal from MTN,” said the insider. Analysts have said MTN is particularly interested in Telkom’s fibre business, Openserve. Contacted for comment, MTN group corporate affairs chief Nompilo Morafo said there was no offer or official discussion at the moment.
“Telkom is a business with good assets. MTN remains of the view that the offer made in July 2022 would have been good for shareholders of both companies and broader stakeholders,” Morafo added. Responding to a question on possible talks with Telkom, MTN CEO Ralph Mupita said at the company’s capital markets day last week: “Our strategic positioning for the medium term remains that there is a sensible deal that could be had, but deals are complex.
“We are a disciplined organisation. So, if ever there was a deal [it would be] at the topco level [holding company]. We don’t like asset-level deals, it is way too complicated. “It sounds nice on paper but there are so many intricacies about valuation, why debt is sitting there and all of that … Now there is nothing to say to shareholders, but we have to remain strategically agile on the opportunity but have to be extremely disciplined about our strategy.”
Mupita reiterated that “consolidation in South Africa is inevitable”. Should MTN revive its interest in Telkom, it could find itself in the crosshairs of competition authorities, as such a takeover would leave only two major mobile networks competing alongside the much smaller Cell C and Rain.
When it proposed a merger with Telkom last year, Rain said this would create an operator with enough scale, radio frequency spectrum and network infrastructure to challenge Vodacom and MTN. A takeover by the Maseko-led consortium, on the other hand, would not raise major competition questions as Axian operates largely in the Indian Ocean islands, with some assets in West and East Africa.
Telkom would not comment when contacted on Friday as it is in a closed period ahead of a results announcement. CEO Serame Taukobong has previously said the company is not for sale and has a future as a standalone company.
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