South African telecommunications giant Telkom is “primed for merger and acquisition”, with many companies interested in various parts of its business and some in the entire company.
Senior market analyst at Nedbank Preshendran Odayar told CNBC Africa that tremendous value could be unlocked in selling part of Telkom’s business.
He said that Telkom will survive on its own, but “it is primed for merger and acquisition”.
“Everybody wants to take them to the dance, but they keep rejecting them.”
Many companies are interested in Telkom’s business as it is very strong in parts of network infrastructure, particularly fibre, through Openserve and data centres.
These parts of the business are most attractive to potential suitors, said Odayar.
MTN, in particular, could benefit from leveraging Telkom’s fibre assets to compete with Vodacom following its merger with Vumatel-owner CIVH, which is currently awaiting approval from the Competition Commission.
Odayar said Telkom CEO Serame Taukobong has set up a separate team within his office to analyse potential merger and acquisition opportunities.
This team will focus on the disposal of parts of Telkom’s business. The company is looking for a minority partner for Openserve, while it is willing to dispose of its towers business, Swiftnet, completely.
“It is a question of when it will happen, not if it will happen,” Odayar said, with many of these potential acquisitions at advanced stages.
However, many potential suitors do not see eye-to-eye with Telkom regarding the company’s price.
Taukobong has said the company will only be interested in offers valuing the company at R60 per share or above.
This is over double what the company is currently trading for on the JSE and places a nearly R30 billion price tag on the company.
Odayar said his calculations show the company is worth R48 a share. However, the value of its components is worth more than that.
A potential buyer would most likely buy the company and sell some of its business units to unlock the value and focus on the areas where the company has a strong market position.
Former CEO snubbed
Telkom’s board rejected an offer to buy the company from a consortium which included its former CEO Sipho Maseko, which approached it with an unsolicited, non-binding offer.
The consortium comprised Maseko’s Afrifund, Axian Telecom and the Government Employees Pension Fund, managed by the Public Investment Corporation.
Business Times reported that the Maseko consortium initially offered R46 a share for a controlling stake in Telkom.
Taukobong said the company is worth over R60 per share, and any suitors should see that as a benchmark before making an offer.
In the case of the Maseko consortium offer, Taukobong said no due diligence was done, and that is where the matter ended.
“It is the board’s view that the indicative proposal is not in the best interest of shareholders and that the current strategy will yield better value for shareholders,” Telkom said.
A spokesperson for the consortium told Business Day that their offer was fair and the value creation strategy was sound.
He added that the deal would have resulted in Telkom becoming one of the pan-African telecommunications champions, with a sustainable financial framework for the future.
“Apart from an informal meeting with the CEO and chairman, we have not had the opportunity to address the board on the merits of our offer,” he said.
“We have therefore been denied the opportunity to explain the price’s rationale and negotiate price and terms with the Telkom Board.”
“We regretfully conclude that our ambition to conduct a friendly board-supported transaction has been rebuffed.”