Within a year, Telkom had rejected four deals that could have injected much-needed cash into the struggling telecom operator, restructuring its operations and turning its fortunes around.
Telkom turned down the latest rebuff from its former CEO Sipho Maseko, who is part of a consortium that wants control of the company.
Before Telkom formally rejected Maseko’s advance on Friday, July 7, Telkom rejected an offer from MTN to buy it and merge its operations with mobile operator Rain. Investment firm Toto Consortium reportedly submitted a bid, but later withdrew.
Unlike MTN’s Rain and Toto Consortium, Maseko, which led Telkom for nearly a decade until July 2022, is yet to give up.
Maseko and his consortium accused Telkom’s board of directors of rejecting their offer to buy a majority stake in the company without properly considering it.
They also accused the board of directors of deliberately thwarting their efforts to discuss the merits of the deal, saying, essentially, that the door to negotiations was closed from the start.
To recap: A consortium consisting of Maseko’s Afrifund Investments and its partner, Madagascar-based Axian Telecom, wants to buy a 50% stake in Telkom – effectively controlling the company.
The consortium’s bid received backing from the state-owned asset management company, Public Investment Corporation, which owns 15% of Telkom. The deal requires approval from the government, which owns 40.5% of Telkom.
In a July 10 statement, the consortium said that in the four months since it first submitted it to Telkom’s board, it had not had the opportunity to catalyze its takeover bid.
“We have not had an opportunity to address the Board of Directors on the merits of our proposed non-binding offer [except for an informal meeting with the CEO and the chairman nearly three months ago]. We were therefore denied the opportunity to explain the rationale for the price and to negotiate price and terms with Telkom’s board of directors.
Presentation of the consortium
The consortium was ready to shell out 12 billion rand for a stake in Telkom, with Business Times It reported that it had submitted its offer at R46 per Telkom share. When the offer was presented to Telkom’s board of directors on March 10, it represented a 20% premium to the R38 that Telkom shares were trading on the JSE. That premium has widened as Telkom shares have since fallen 24% to R27.77, wiping out R5.2 billion from the company’s JSE value.
Shares of Telkom have fallen further since Friday after it formally notified investors that it had rejected the consortium’s offer.
In a short statement, Telkom said: “Telkom’s board of directors, after considering the indicative proposal, has decided not to continue discussions with the consortium, as the board is of the opinion that the indicative offer is not in the interest of shareholders and that Telkom’s current strategy will create better shareholder value.”
But the consortium believes that the price it was offered was “fair and that the value creation strategy was sound and would have resulted in Telkom becoming one of the leading telecoms leaders in Africa, with a sustainable financial framework going forward”.
The consortium joined Maseko because, as the former CEO, he knew Telkom and its operations well.
Maseko wants to unlock value in Telkom by combining its assets – mainly mobile phone towers and fiber network – with those of Axian, which also manages and owns telecommunications infrastructure.
signs of hostility
There were signs of hostility around the potential deal from the start.
Telkom’s chief executive, Serame Taukobong, was adamant SA’s third-biggest telecoms operator was not up for a takeover, even though it faces headwinds on many fronts.
“We don’t need a white knight to come and save us,” said Taukubong. Daily Maverick In a recent interview.
Read more at The Daily Maverick: ‘Telkom is not for sale’ says CEO Seram Taukupong as potential buyers circle the ailing operator
However, he was open to Telkom having partners who could potentially invest capital in the company – without controlling it – and advising on its strategic direction.
The consortium said its “friendly” approach to the takeover discussions had been “rejected” by Telkom’s board of directors without providing a detailed reason.
“One of the reasons given by the Board is the lack of clarity as to the benefits to Telkom arising from our strategy proposal and why and how this strategy is better than Telkom’s current strategy.”
For the time being, Taukobong and the Telkom board are ready to deal with the company’s challenges without any help.
Structural changes in the market have hurt Telkom’s operations.
Consumers are moving away from Telkom’s traditional business model for voice services, which is in decline, to newer technologies such as 5G and fiber connectivity. The rising cost of living has caused many consumers to cut back on telecom products and services offered by Telkom.
Any revenue Telkom generates is also being eroded by the company’s extra spending on generators and backup batteries that power its cellphone towers during the higher phases of the Eskom outage, adding to the strain on its finances.
Telkom recently posted an annual financial loss of R10 billion at a time when its competitors, including MTN and Vodacom, are making profits. It wrote the value of its various business units at R13 billion.
Telkom has stopped paying dividends to shareholders for the next three years.
Taukobong believes Telkom’s growth will come from investments in the mobile business, rolling out more fiber connections to homes and businesses, and freeing up money by selling masts and towers.
The market is wondering if there will be buyers given the weak local economy, low business confidence, interest rates are high, and there is still uncertainty about the electricity situation.
The consortium said it was ready to once again involve Telkom in its proposal, indicating that it had not yet relinquished the beleaguered telecom company. DM