Telkom says acquisition will help grow its mobile business

Telkom SA SOC Ltd. sees an acquisition as one way to grow its mobile-phone business as the South African former landline monopoly looks to boost profit and attract higher-paying customers.

Telkom has the balance sheet to pursue a deal, Chief Executive Officer Sipho Maseko said in an interview at Bloomberg’s Johannesburg office on Wednesday. While he didn’t name a specific target, local rival Cell C Pty Ltd. is on the group’s radar, people familiar with the matter said in December.

“An acquisition would be a good idea to acquire growth in the mobile business,” said the CEO, who has run Pretoria-based Telkom for almost six years. “You have to be careful on what you acquire and what strategic purpose it will serve. Data is the new voice — you don’t want to buy voice revenues.”

Under Maseko, Telkom has reduced its dependence on declining fixed-line voice calls to 25 percent of sales from 75 percent, the CEO said. That’s been part of a wider shake up at the firm, which is still almost 40 percent owned by the government. Telkom is now profitable, pays a dividend and has more than halved the workforce from the 22,000 it employed when Maseko took over.

Smaller Players

Telkom’s mobile business is the fourth-largest in South Africa behind Cell C in third; together they have about 21 million subscribers. That trails market leader Vodacom Group Ltd. and its crosstown rival, MTN Group Ltd., which have a combined 73 million. Closely held Cell C is seeking to expand into both fiber networks and financial services, where Telkom also has an interest.

While Telkom’s stock has gained about 360 percent since Maseko joined from Vodacom in 2013, he’s restructured the company into separately operating businesses to make its value easier for investors to calculate.

That “provides us with more transparency and accountability,” said Maseko.

Telkom is worth more when you value each division individually, JPMorgan Chase & Co. analysts including JP Davids, said in a note in November.

The shares have gained 45 percent in the past 12 months and traded 0.2 percent higher at 70.25 rand as of 9:34 a.m. in Johannesburg on Friday. That values the company at 36 billion rand ($2.5 billion).

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Telkom says acquisition will help grow its mobile business