Sipho Maseko said Telkom was worth R108 per share – but offers only R46

Former Telkom CEO Sipho Maseko told investors in 2020 that Telkom was worth R53 billion, equating to a share price of R108. However, he now wants to buy the company at R46 per share.

Last month, Bloomberg reported that Maseko’s Afrifund had the backing of the Public Investment Corporation (PIC) and Mauritius-based Axian Telecom to buy a 35% stake in Telkom.

The 35% stake could be combined with the PIC’s current 13.6% shareholding to further boost the group’s overall holding.

Business Times reported that the Maseko consortium offered R46 a share for a controlling stake in Telkom. However, it was rejected as too low.

Unsurprisingly, Telkom dismissed Maseko’s offer as the former CEO valued the company at more than double that three years ago.

In Telkom’s annual results presentation for the year ended 31 March 2020, Maseko told investors that the “sum of the parts valuation” was R53 billion.

If Telkom had a market cap of R53 billion, with its current 490.15 million shares outstanding, the share would trade at R108 per share.

The four units used in the sum of the parts valuation were:

• Openserve – Telkom fibre and infrastructure business, South Africa’s leading wholesale infrastructure connectivity provider.
• Gyro and Swiftnet – Telkom’s tower, masts, and property businesses.
• BCX – A tech company that provides ICT solutions mainly to South Africa’s business market.
• Telkom Consumer – Telkom’s consumer-facing business, which offers mobile voice and data, fixed-broadband, and fixed-voice services.

Maseko told investors and shareholders in 2020 that Telkom was trading at a significant discount to the sum of the parts.

In its latest annual report, Telkom again reiterated that Telkom was trading at a deep discount to its intrinsic value.

To unlock value for shareholders, Maseko proposed listing Telkom’s masts and towers business, Swiftnet, separately on Johannesburg Stock Exchange (JSE).

“We are committed to realising the Value Unlock Programme. The board will provide further updates on the proposed Swiftnet listing and how we plan to drive maximum shareholder value,” Telkom said.

Good time to strike

It is a perfect time for Maseko and his partners to strike. The Telkom share price came under severe pressure following a poor trading update.

Last month, Telkom announced a planned R13 billion impairment on Openserve, Telkom Consumer, Gyro, and BCX.

The telecoms operator expected a 465% to 485% decline in basic earnings per share (BEPS). On a normalised basis, BEPS is expected to decline by 70% to 90%.

Telkom said the business suffered because of load-shedding, low economic growth, high interest rates, and evolving technological advancements.

This saw the share price plummet to around R24 per share as investors did not see good news on the horizon.

Telkom’s market cap dropped to well below R15 billion, significantly less than much smaller operators like Rain and Vumatel.

Openserve alone is worth much more than R15 billion, which shows how much value can be unlocked.

Business Times reported that Telkom and the Maseko Consortium are still in discussions, and a revised offer has been presented. However, it is not materially different from the original one.

MTN is also waiting in the wings and has deep enough pockets to buy Telkom outright. MTN has not officially announced that it is interested in buying Telkom again.

Telkom’s share price climbed by over 30% on the news of a potential acquisition and is now trading at over R32 a share.

More news is expected about the discussions when Telkom releases its full-year results tomorrow.

Telkom response

Telkom responded to the discussions, saying it has received an unsolicited non-binding indicative letter from the consortium for acquiring a controlling stake in Telkom.

The Telkom Board of Directors is assessing the merit of the bid in accordance with its fiduciary duties.

Telkom has requested the Maseko Consortium to provide further clarity on several matters, including the proposed offer price and funding certainty.

“As such, discussions remain of an exploratory and non-consensual nature, there being no certainty that the outcome of these discussions will result in a transaction,” it said.

“Shareholders are advised to exercise caution when dealing in the Company’s shares until a further announcement is made.”

Telkom added that it continues to pursue its strategic value-unlock initiatives.

“Should such initiatives result in any developments that may have a material effect on the value of Telkom’s shares, information on such arrangements will be disclosed to shareholders.”

Hat tip to Adrian Saville, economics, finance, and strategy professor at the Gordon Institute of Business Science (GIBS), for highlighting Maseko’s 2020 statement on Twitter.