Telkom, MTN, Vodafone talks confirmed
In a move widely anticipated by the market for many weeks now, Telkom (JSE:TKG) and MTN (JSE:MTN) today each released cautionary announcements on Sens. Telkom SA announced to the market that it had entered into negotiations with Vodafone and MTN Group.
The Business Times reported yesterday that Telkom’s board “will consider bids for its fixed-line phone business and its 50% stake in cellphone giant Vodacom when it gathers for its annual meeting next month”. This has been fairly well understood to be on the cards among industry analysts for some time.
Irnest Kaplan, MD of Kaplan Equity Analysts stressed that the announcement “is not really saying anything specific”. Kaplan suspects that the obvious expectation is that Telkom would be looking to offload its 50% in Vodacom to Vodafone, but he adds that one shouldn’t simply jump to conclusions.
Moneyweb can, however, confirm that a team of Vodafone’s corporate advisers have been in South Africa for at least three weeks.
Kaplan says the point that worries him is the speculation on the other side of the deal: he wonders how much sense there is in MTN buying the whole of Telkom’s fixed-line business?
He supposes that there would, quite possible, be more sense in MTN buying certain parts of the fixed-line operation (like Telkom Business or the data division).
When considering Africa, Kaplan notes the major difference between South Africa and the rest of the continent is the underdeveloped fixed-line operations in countries outside of SA.
He hypothesises that MTN could use the Telkom business to launch a full onslaught into Africa.
Kaplan notes it is interesting that in its corporate vision, MTN does not restrict itself to the mobile space. It speaks about “being a leader in telecommunications in developing markets”.
Kaplan mentions Telkom’s international links (especially via the SAT-3 fibre cable) as being potentially attractive to MTN.
“Maybe this is a way to for MTN to control its own destiny?” says Kaplan.
He also told Moneyweb there are “probably synergies” between the two companies that could be exploited, but he could not find any “real compelling reasons for having Telkom inside MTN”.
“Would it be better off trying to integrate the two, or making sure Iran works?”
Telkom announced at its results presentation in mid-June that it would be reviewing its mobile strategy. Vodafone is 50% owner of Vodacom (Telkom owns the other 50%). It is no secret that Vodafone has been eyeing Telkom’s 50% share for some time now.
In terms of valuing Telkom, analysts have historically stripped out Vodacom’s value. Kaplan agrees that Vodafone would easily find value in Vodacom. Speculation has it that Vodacom’s value would be around R100bn (implying R50bn for Telkom’s 50% stake).
Analysts Moneyweb have spoken to over the past few weeks did not foresee competition problems. Kaplan agrees, saying that if Telkom was allowed to own 50% of cellular giant Vodacom, he could not see a problem with MTN owning a much smaller Telkom (ie, the fixed-line business).
As part of Vodafone’s results coverage, the Financial Times reported at the beginning of June that Telkom was reviewing its participation in Vodacom. Vodafone and Telkom each own 50% of Vodacom. Reuben September said at the time: that “if presented with a bona fide offer from Vodafone, the board would be obliged to consider it”.
Telkom has made its intentions clear in the mobile space, saying that it wanted to “achieve a fixed-mobile-service provider model across the fixed and mobile-value chain”.
Telkom shares jumped over 10% on the news. MTN shares declined around 2%.
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