Talks on asset sales lift Telkom shares to record

Telkom's shares shot to a record high yesterday on news that it was in talks to sell its assets to Vodafone and MTN.

Telkom has said it wanted to sell its 50 percent investment in Vodacom, valued at R75 billion, to the UK's Vodafone, and its fixed-line network to Vodacom rival MTN.

Vodacom is the country's top cellular operator with 24 million customers. MTN has more than 13 million.

Analysts say the synergies Telkom hoped to achieve with Vodacom have not materialised as the two compete in areas such as data delivery and internet access. Telkom has launched its own pay television unit, Telkom Media, while Vodacom has gone into partnership with media group Naspers's pay television unit, MultiChoice.

"The bottom line is, if these talks are successful, we shall see some value released in Telkom's fixed-line business," said Khulekani Dlamini, a portfolio manager at Renaissance Specialist Fund Managers.

Telkom's share price gained 8.39 percent to close at R190.99 yesterday. This gave it a market capitalisation of R103 billion. MTN's shares lost 2.57 percent to close at R106, putting its market cap at R200 billion.

"My guess is that the MTN deal will be a share deal, because of the group's lack of cash," said Rajay Ambekar, a portfolio manager at Cadiz African Harvest.

Telkom said no decision on the transaction had been reached and talks were at a preliminary stage.

But analysts are convinced Vodacom's sale is a done deal, with only final details outstanding.

Dlamini said a likely scenario was for MTN and Vodafone to partner to buy all of Telkom and later separate the assets.

But this carries huge regulatory hurdles, unless the two firms indicate how they will separate entities and make clear plans on how to deal with overlapping areas of their businesses.

MTN is interested in buying Telkom's fixed-line assets as a quick way of winning more corporate clients. It is laying its own fibreoptic cable to reduce fees payable to Telkom and to meet demand for better access.

Telkom wants a cellular partner that will boost its services and offer customers bundled products.

"We view the news positively and await the outcome of the discussions eagerly," said Brian Molefe of the Public Investment Corporation (PIC), which owns 15.7 percent of Telkom.

"We suspect that a possible deal would unlock even more value for shareholders in Telkom."

Dlamini said that in general, fixed-line firms were cheap compared with mobile operations. He added that the MTN-Telkom deal might work because there would be one shareholder.

Rhys Summerton, a telecoms analyst from Citigroup, said the transaction between MTN and Telkom was a way to challenge Vodacom's dominance in South Africa and narrow the market share difference.

Although MTN and Telkom both have the PIC as a shareholder, the big question is whether the government will sell its 38 percent stake in Telkom.

The department of communications would not comment on the deal.

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