Abortive Telkom deal ‘a national embarrasment’

2012-06-04 08:52

Experts have labelled the failed deal between Telkom and the South Korean KT Corporation a national embarrassment.

On Friday government announced that it did not support the massive deal between the two telecommunications companies – after more than nine months of negotiations.

André Wills, managing director of Africa Analysis, said one had to ask why the deal was turned down at such a late stage.

Government had surely been part of the negotiations. Cabinet approval should have been a mere formality.

KT, South Korea’s largest provider of telecommunications services, wanted to acquire 20% of Telkom’s shares for R3.3 billion.

It had initially offered R4.7 billion, but last month reduced its offer following the decline in Telkom’s share price over the past year.

The deal had the support of several experts, especially as Telkom needs the injection of cash and expertise.

Arthur Goldstuck, managing director of World Wide Worx, said the decision was not in the interests of either Telkom shareholders or consumers.

“It hangs a label around South Africa’s neck saying that we are closed to business. It points to protectionism and an attempt to keep a stranglehold on the country’s communications network.”

At Friday morning’s media conference Collins Chabane, minister in the Presidency responsible for monitoring performance and evaluation, confirmed that Cabinet had turned down the transaction.

Government owns 39.8% of Telkom, and more than 50% if the Public Investment Corporation’s stake is included.

Government spokesperson Jimmy Manyi stated that the decision had been taken because government, via the Department of Communications, wants to give all South Africans broadband by 2020.

Telkom is a strategic asset in this effort.

Government acknowledged that Telkom needed to put in place an urgent turnaround plan, Manyi said.

Communications Minister Dina Pule has to report to Cabinet within three months regarding Telkom’s options.

The news sent Telkom’s share price down to its lowest level in eight years. It closed at R21 on Friday, a decline of 8.34%, and it has lost 44% of its value since the high of R37.50 in July last year.

“I think what we are seeing here is a struggle between developed and developing markets,” says Wills.

“Interested parties have different priorities. What’s good for Telkom may not be what government thinks is good for the company.”

According to Goldstuck, government’s decision means a protracted decline for Telkom. “We’ll have a long wait before the telecommunications industry is free.”

For the man in the street this means that the price of broadband services will not fall dramatically and that the company will not invest in new technology.

Marian Shinn, the DA’s spokesperson on communications, described government’s decision as short-sighted.

“If we turn our back on KT Corp and the company looks for friendlier investment partners elsewhere on the continent, South Africa will rank even lower on the list of technologically advanced countries in Africa.”

Marius Croucamp, Solidarity’s spokesperson, declared the decision a “fiasco”.

In his view it could lead to Telkom having to cut costs owing to a lack of capital, leading to the retrenchment of thousands of workers.

The poor impression of South Africa created by this decision will be extremely difficult to mend, he said.

Over the weekend the JSE said that it would review the recent trades in Telkom shares.

Thursday saw significant trade in the company’s shares – even before government’s announcement.

This resulted in the Telkom share price shedding 4.9%.

Experts attributed the trade to the fact that Telkom was to be removed from the MSCI South Africa Index the next day owing to the decline in its market value.

The stock exchange told Bloomberg that it would refer the matter to the Financial Services Board should further investigation be required.

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