In the space of a year, Telkom has rejected four deals that could have potentially pumped much-needed money into the struggling telecommunications operator, restructuring its operations and turning its fortunes around. 

Telkom dished out the latest rejection to its former CEO Sipho Maseko, who is part of a consortium that wants to take control of the company.

Before formally spurning Maseko’s advances on Friday, 7 July, Telkom rejected a proposal from MTN to buy it and merge its operations with mobile operator, Rain. Investment firm Toto Consortium also reportedly made an offer, but subsequently pulled out. 

Unlike MTN, Rain and Toto Consortium, Maseko, who led Telkom for nearly a decade up until July 2022, is not giving up just yet.

Maseko and his consortium have accused the Telkom board of rejecting their offer to buy a majority stake in the company without properly considering it.

They also accused the board of deliberately frustrating their efforts to discuss the merits of the deal, saying that, essentially, the door for negotiations was shut from the beginning.

To recap: a consortium comprising Maseko’s Afrifund Investments and its partner, Madagascar-based Axian Telecom, wants to purchase a 50% shareholding in Telkom — effectively controlling the company.

The consortium’s offer received support from the state-owned asset management firm, the Public Investment Corporation, which owns 15% of Telkom. The deal would require approval from the government, which owns 40.5% of Telkom.

In a statement issued on 10 July, the consortium said that in the four months since it first wrote to Telkom’s board, it had not had the opportunity to motivate its takeover offer.

“We have not had the opportunity to address the board on the merits of our proposed nonbinding offer [except for an informal meeting with the CEO and the chairman nearly three months ago]. We have therefore been denied the opportunity to explain the rationale for the price and to negotiate price and terms with the Telkom board,” it said.

The consortium’s offer

The consortium was prepared to shell out R12-billion for the shareholding in Telkom, with Business Times reporting that it pitched its offer at R46 per Telkom share. When the offer was submitted to the Telkom board on 10 March, it represented a 20% premium on the R38 that Telkom shares were trading at on the JSE. This premium has widened as Telkom shares have since declined by 24% to reach R27.77, wiping out R5.2-billion from the company’s value on the JSE.

Telkom’s shares have slid even further since Friday after it formally informed investors that it rejected the consortium’s offer.

In a short statement, Telkom said: “The Telkom board of directors, having considered the indicative proposal, has decided not to continue discussions with the consortium, as the board is of the view that the indicative proposal is not in the best interest of shareholders and that the current Telkom strategy will yield better value for shareholders.”

But the consortium believes that the price it offered was “fair and that the value creation strategy was sound and would have resulted in Telkom becoming one of the pan-African telecommunications champions, with a sustainable financial framework into the future”.

The consortium joined forces with Maseko because, as the former CEO, he knows Telkom and its operations well. 

Maseko wants to unlock value in Telkom by combining its assets — mainly cellphone towers and a fibre network — with those of Axian, which also operates and owns telecommunications infrastructure. 

Signs of hostility

There were signs of hostility around the potential deal from the start.

Telkom CEO Serame Taukobong was adamant that SA’s third-largest telecommunications operator was not up for grabs, even though it faces headwinds on many fronts.

“We don’t need a white knight to come and save us,” Taukobong told Daily Maverick in a recent interview.

Read more in Daily Maverick: ‘Telkom is not for sale,’ says CEO Serame Taukobong while potential buyers circle ailing operator

He was, however, open to Telkom having partners that would potentially invest capital in the company – without taking control of it – and advise on its strategic direction.

The consortium said its “friendly” approach to takeover discussions has been “rebuffed” by the Telkom board without providing a detailed reason.

“One of the reasons advanced by the board is the lack of clarity regarding the benefits to Telkom arising from our proposal regarding strategy and why and how this strategy is better than Telkom’s current strategy.”

For now, Taukobong and the Telkom board are prepared 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 of voice services, which are in decline, to newer technologies such as 5G connection and fibre. 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, further putting pressure on its financial situation.

Telkom recently posted an annual financial loss of R10-billion at a time when its competitors, including MTN and Vodacom, are profitable. It wrote down the value of its various business units by R13-billion.

Telkom has suspended dividend payments to shareholders for the next three years.

Taukobong reckons that Telkom’s growth will come from investments in its mobile businesses, rolling out more fibre connections to homes and businesses, and freeing up money by selling its masts and towers.

The market is wondering if there would be buyers considering the domestic economy is weak, business confidence is low, interest rates are high and there is still uncertainty around the electricity situation.

The consortium said it was willing to engage Telkom again on its proposal, suggesting that it is not giving up yet on the beleaguered telecommunications operator. DM