Fair deal – now please pay us

In­sti­tu­tional share­hold­ers want at least 75% of Vo­da­com pro­ceeds paid back to them

Finweek English Edition - - Companies & Markets - BELINDA AN­DER­SON be­lin­daa@fin­week.co.za

IN­STI­TU­TIONAL SHARE­HOLD­ERS in Telkom are gen­er­ally pleased at the price put on the ta­ble by Voda­fone for an­other 15% stake in Vo­da­com (it al­ready has 50%) and with the prospect of the sub­se­quent un­bundling and list­ing of the re­main­ing shares on the JSE. They’re now hold­ing thumbs that Telkom will heed their call to see the bulk of the cash – most said they wanted at least 75% of it, or nearly R16,9bn – paid back to them.

Re­nais­sance Fund Man­agers’ Khulekani Dlamini says share­hold­ers had proac­tively en­gaged Telkom’s man­age­ment in that re­gard prior to the of­fer and hoped to see the fruits of that share­holder ac­tivism. “Most of us don’t trust them to de­ploy cap­i­tal on our be­half,” says Dlamini. Al­though it would pre­fer 100% of the cap­i­tal to be paid back to share­hold­ers, Dlamini con­ceded that might be un­re­al­is­tic.

Telkom CEO Reuben Septem­ber has pre­vi­ously said that if it couldn’t make an in­vest­ment case to best use the cap­i­tal from any sale of its Vo­da­com stake, it would, in prin­ci­ple, re­turn cap­i­tal to share­hold­ers.

Telkom fi­nally an­nounced the Voda­fone deal had the go-ahead from its board of direc­tors and Gov­ern­ment – which ul­ti­mately con­trols the group – in a re­cent re­newal of its long-stand­ing cau­tion­ary an­nounce­ment.

The other party that Telkom was ne­go­ti­at­ing se­ri­ously with – a Mve­laphanda-led con­sor­tium – dropped out mid-Septem­ber, cit­ing “cur­rent mar­ket con­di­tions and pric­ing con­sid­er­a­tions”.

Yet a third prospec­tive bid­der – the Mowana con­sor­tium – had pro­posed putting Globa­com’s Nige­rian mo­bile busi­ness to­gether with Telkom’s 50% stake in Vo­da­com. But al­though there was some be­hindthe-scenes ex­cite­ment about that prospect, it was out­weighed by scep­ti­cism about whether the group would be able to ac­cess the nec­es­sary cap­i­tal; and Telkom never in­di­cated it had en­tered into for­mal dis­cus­sions with the con­sor­tium.

The Voda­fone deal ap­par­ently re­ceived Gov­ern­ment’s ap­proval (it holds 38% and the Pub­lic In­vest­ment Cor­po­ra­tion (PIC) has 15%) in the dy­ing days of Thabo Mbeki’s Cab­i­net. It’s be­lieved the cur­rent Moth­lanthe Cab­i­net sub­se­quently also gave it the thumbs up.

It was ini­tially thought the deal would in­volve Voda­fone pos­si­bly buy­ing a 12,5% stake for R18,75bn but it fi­nally of­fered to buy 15% for R22,5bn (the trans­ac­tion is still sub­ject to var­i­ous con­di­tions). were ex­pect­ing.

Mar­ket par­tic­i­pants are un­sure of ex­actly how long it will take be­fore the deal is fi­nalised or when Vo­da­com would come to mar­ket. How­ever, the ap­proval by both its board and Gov­ern­ment rep­re­sent two hur­dles al­ready cleared.

But what of the prospects for Telkom as a stand-alone en­tity once the Vo­da­com stake has been sold? In ad­di­tion to want­ing to ex­pand fur­ther up into Africa and build on the early suc­cess of its Multi-Links busi­ness in Nige­ria, Telkom also plans to spend R1,7bn build­ing a mo­bile net­work in SA.

Dlamini says what would save Telkom, isn’t the com­pany it­self, but SA’s reg­u­la­tory en­vi­ron­ment, par­tic­u­larly if that pushes it to­wards the model of an un­bun­dled group. He says Telkom’s net­work is a multi-lay­ered one, with parts that can be hived off. Telkom should sell busi­nesses that aren’t core and sep­a­rate into a whole­sale and re­tail busi­ness, al­though Dlamini con­cedes that’s not a strat­egy man­age­ment seems will­ing to adopt.

Kingston says Telkom needs to think care­fully about what it wants to be: a whole­sale or a re­tail player? He says it should be­come a pure in­fra­struc­ture player – a con­duit for other op­er­a­tors to lever­age off its net­work rather than try­ing to play in nu­mer­ous dif­fer­ent mar­kets.

But while the jury is still out on Telkom’s strat­egy in SA’s fiercely com­pet­i­tive and ma­ture mar­ket, its strat­egy to the north is po­ten­tially more at­trac­tive, due to those mar­kets be­ing less de­vel­oped and gen­er­ally pos­ing less com­pe­ti­tion, Kingston says.

Dlamini says the price – which val­ues Vo­da­com at R150bn – rep­re­sents a “mas­sive” pre­mium in the cur­rent mar­ket and also a pre­mium to its rat­ing of the busi­ness.

San­lam In­vest­ment Man­age­ment’s An­drew Kingston agrees the cur­rent im­plied mar­ket val­u­a­tion of Vo­da­com is at a pre­mium; but the con­trol pre­mium, as rep­re­sented by the of­fer Voda­fone has pro­posed, is in line with what it and the mar­ket

Prefers 100% of cap­i­tal. Khulekani Dlamini

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