Telkom slips 10.8% after aborting MTN talks
Shares in Telkom plunged 10.82 percent to R143.98 yesterday after it called off talks to dispose of its stake in Vodacom and sell its fixed-line assets to MTN, thwarting the chances of creating a company that will offer fixed-line and cellular services.
Telkom said that after detailed investigations into strategic, operational and regulatory aspects, the parties were unable to conclude a transaction “in the best interest of their respective shareholders”.
The termination of the talks “was driven by primarily matters related to the anticipated costs and benefits of the implementation of the transaction”.
Khulekani Dlamini, a portfolio manager at Renaissance Specialist Asset Managers, said it was a complex deal from the beginning due to among other issues pricing and regulations.
The deal was unlikely to have passed regulatory hurdles as the potential merged entity would have had an unfair competitive advantage. MTN is the second-largest cellular operator while Telkom dominates the fixed-line business.
Irnest Kaplan, a telecoms analyst at Kaplan Equity Analysts, said yesterday that the blocking of Telkom’s bid for technology firm Business Connexion by the competition commission could have been a clear indication that the MTN and Telkom transaction was doomed.
Bloomberg said Cell C’s chief executive, Jeffrey Hedberg, welcomed the end of the talks because the deal would have “sparked anti-competitive conduct” and had the potential to cause “rapid and permanent damage to competition”.
The decision to terminate the talks is a blow to Telkom, which needs to diversify its business because its traditional fixed-line business is losing out to cellphones and competition from value added network providers such as Internet Solutions. Telkom’s net profit from fixed-line plunged 46.6 percent to R2.6 billion in the six months to September.
For MTN the deal, which was backed by the government, could have fast-tracked its entry into the fixed-line market. MTN, whose share price gained 7.65 percent to close at R129.50, is spending R1.3 billion to build a fixed-line network.
Its back to the drawing board for Telkom, which needs a cellular partner to expand into new business areas. The termination of talks was a blow to Vodafone, which had a grand plan of raising its 50 percent stake in Vodacom and then seek a JSE listing.
Vodafone said yesterday that it was still interested in raising its Vodacom stake.
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