Vodafone sizes up Telkom
On Thursday, Sarin flew into SA and held several “fruitful” meetings with Telkom and Vodafone management.
On Friday morning, Sarin met a “small, but very influential group” of investors and stakeholders. These included senior representatives from the Deputy President’s office and the Department of Trade and Industry, as well as the chairmen of regulatory body Icasa, public broadcaster SABC, the Public Investment Corporation (PIC) and information technology company Dimension Data.
Fixed-line operator Telkom has been described as “affordable” at its current value of R72-billion.
Analysts said a mystery R1.8-billion trade in Telkom shares on Thursday — representing 2.5% of market value — was another sign Telkom could be in the throes of being bought. The only shareholders who can sell such a large stake are the government, the PIC, and Elephant Consortium.
A senior industry player described how the sale could play out: Vodafone could either buy Telkom outright or a private equity company could buy it and split the assets into two. If the equity company sold Vodacom to Vodafone, then Telkom could relist its fixed-line business.
Sarin would not confirm in an interview with Business Times on Friday the possibility of Vodafone taking over Telkom. He did confirm he had “a very good, fruitful” meeting with Telkom’s Molotsane on Thursday. This indicates the once-tense relationship between the equal partners in cellphone company Vodacom is thawing.
Analysts saw this as a signal that Vodafone could be mending bridges as it positions itself to buy Telkom. Khulekani Dlamini of Renaissance Asset Managers said Vodafone and Telkom suddenly working together indicated the global mobile giant could be planning to acquire Telkom.
“Vodafone is not usually overt and they don’t telegraph their moves. But the fact that he [Sarin] has come here [to SA] himself suggests a takeover is in the offing,” said Dlamini.
“Vodafone and Telkom have been uncomfortable partners so far, and now the animosity is fading it’s a net positive sign of a possible takeover.”
He said when he spoke to Molotsane earlier in the week, the Telkom boss’s comments sounded as if Telkom being sold to Vodafone “was a possibility and something might be in the offing”.
An analyst from Business Connexion (BCX), who did not want to be named as BCX is being bought by Telkom, also believed the deal could be done as Telkom was affordable.
Commenting on Vodafone’s improved relationships with Telkom, Sarin said: “We’re strengthening partner relationships … and you’ll be seeing more co-operation and corroboration in the months and years to come. We’re still thrashing out the basics on how we want to be partners, and getting alignment on where we want Vodacom to be in the future.”
Telkom was equally tight-lipped, but did not refute suggestions of a takeover. Asked whether a potential sale was tabled this week, spokeswoman Lulu Letlape refused to give a yes or no answer.
“My answer to that is Telkom and Vodacom are discussing how we can ensure Vodacom becomes more profitable in the future,” she said.
In a major breakthrough, Sarin indicated Vodafone had informally lifted shareholder restrictions on Vodacom, giving the local cellphone company the nod to muscle in on Africa’s remaining telecommunications assets. Until now, in terms of a shareholder agreement, Vodafone has blocked Vodacom’s expansion into Africa.
Sarin said Vodafone, with Vodacom, was eyeing six markets.
“We’re very interested in Africa as a continent. We’re going to use Vodacom as our main vehicle into Africa. It’s my experience that you need to have local knowledge. Trying to expand into Africa out of Newbury [Vodafone’s headquarters] is not a good idea,” he said.
“Yes, we have this shareholder agreement, but this line that was written in the contract 10 years ago is not valid because we don’t think in those terms.”
The shareholder agreement prevented Vodacom expanding north of the equator.
Telecoms analysts said Vodafone’s surprise lifting of the restrictions was good news for Vodacom and competition in the African markets.
Commenting on Sarin’s new strategy, Vodacom CEO Alan Knott-Craig said: “We welcome his comments and look forward to our first acquisition north of the equator.”
Vodacom already has a footprint in the Democratic Republic of Congo, Tanzania, Mozambique and Lesotho — and dominates in South Africa.
Dlamini said there were still greenfields opportunities on the continent. But he added Vodacom could no longer be a first mover and would be fighting for market share. “The ship hasn’t sailed as yet in Africa.”
Vodafone increased its stake in Vodacom this year by acquiring Venfin’s shares in the local mobile giant, making it an equal partner with Telkom.
Speculation has been rife since then that Vodafone could buy out Telkom, as the fixed-line operator’s control of Vodacom — its most lucrative investment — would be undermined.
Telkom is also facing increased competition from the second network operator. It said recently it wanted to broaden its sources of income and was looking at a full range of converged products — a “triple-play” bundle of voice telephony, broadband Internet access and television.
But this strategy collides with those of the mobile operators, including Vodacom.
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