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Telkom shares soar after board confirms offer from consortium led by former CEO Sipho Maseko

Telkom shares soar after board confirms offer from consortium led by former CEO Sipho Maseko
A sign at the entrance to the Telkom head office in the Centurion district of Johannesburg, South Africa, on 25 July 2017. (Photo: Waldo Swiegers / Bloomberg via Getty Images) | Sipho Maseko, former chief executive officer of Telkom. (Photo: Waldo Swiegers / Bloomberg via Getty Images) | The Telkom Tower in the Berea district of Johannesburg, South Africa, on 22 December 2022. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

Telkom’s shares have been battered in recent months because the company faces serious financial problems. However, Telkom’s shares jumped significantly after the company told shareholders that it is considering an offer from a consortium led by former CEO Sipho Maseko.

Telkom shares leapt by as much as 12% during Monday’s intraday trade after the telecommunications operator confirmed that it has received an unsolicited offer from a consortium led by former Telkom CEO Sipho Maseko to acquire a  controlling stake.  

As much as R1.8-billion was added to the value of Telkom’s shares on the JSE, which have been battered in recent months due to MTN ditching its plan to acquire the telecommunications operator, and a recent warning to shareholders of financial losses that it will incur. 

Telkom informed its shareholders on Monday morning that its board was assessing the offer from the consortium comprising Maseko’s Afrifund Investments and its partner, Madagascar-based Axian Telecom. Bloomberg first reported that the consortium wants to purchase a 50% shareholding in Telkom. 

The consortium joined forces with Maseko because he knows Telkom and its operations well as he led the telecommunications company for nearly a decade. Maseko reportedly wants to unlock value in Telkom by combining its assets — mainly cellphone towers and fibre — with those of Axian, which also operates and owns telecommunications infrastructure. 

Telkom said its discussions with the consortium are ongoing. 

“The company has requested the consortium to provide further clarity on several matters, including the proposed offer price and certainty of funding. 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,” Telkom said. Telkom has advised shareholders to exercise caution in trading its shares as it waits for more details and a further announcement is made.

However, Business Times reported on Sunday that the consortium has offered R46 a share to purchase the 50% controlling stake in Telkom, which the board of the telecommunications operator has reportedly rejected. 

The Telkom board reportedly views the offer as being too low, despite a big premium being attached to the offer. When the consortium’s bid for Telkom was tabled early in March, the company’s share price was R38, and the R46 offer represents a 20% premium. The consortium was prepared to shell out R12-billion for a controlling stake in Telkom.

According to Business Times, a revised offer has been presented to Telkom, which is currently being considered. Another challenge for the consortium is to get approval from SA’s government, which owns 40.5% of Telkom, and agree for its shareholding in the company to be diluted. Telkom has been a good investment for the government as it is awarded dividend payments from the company, enhancing the country’s fiscus. The consortium’s offer is said to be receiving support from the Public Investment Corporation, which owns 15% of Telkom. 

Difficult financial situation

Telkom is vulnerable to a takeover bid because it is facing serious financial problems. MTN once even targeted to buy Telkom, but this deal collapsed on the assumption that the latter’s financial problems were enormous and a turnaround will involve a lot of effort and financial resources.

Telkom recently warned shareholders that it will pencil in a decline of at least 85% in its profits for the year ending March 2023 at a time when its competitors, including MTN and Vodacom, are profitable. Telkom’s financial results will be published on Tuesday, 13 June. 

A perfect storm has hit Telkom’s operations.

The rising cost of living has meant that many consumers are cutting back on telecommunications products and services offered by Telkom. Any revenue generated by Telkom is also eroded by the company’s additional expenditure on generators and backup batteries that run its cellphone towers during higher stages of Eskom blackouts. Without this additional expenditure, Telkom’s cellphone towers would fail to operate, potentially throwing its customers into a communications blackout situation.

Structural market changes are also negatively affecting Telkom’s operations, considering that consumers are moving away from its traditional business model of voice services, which is in decline, to newer technologies such as 5G connection and fibre. And because of this, the Telkom board is considering an impairment/write-down of various business operations/assets by about R13-billion. The assets include Telkom’s network operator Openserve, Telkom Consumer, property division Gyro and IT services business BCX. Essentially, the value of these assets has declined and their cash generation potential has diminished.   DM

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