Govt hangs up on Telkom; shares plunge

The government gave no reason for its action, leaving Telkom's board stunned and asking for clarity; it was the government in fact that initiated talks between the two companies.

KT initially said it would buy 20% of Telkom at R36.06 a share, and later reduced the offer to R25.60 a share. On Friday, the government said the deal was off the table.

A disappointed KT said the deal would have brought "significant benefits" to everyone, including the South African government. It believed it could make a positive contribution to the telecoms industry and customers and vowed to explore other opportunities in South Africa.

Communications ministry spokesman Siya Qiza said the proposal was not in line with the government's policy to beef up its infrastructure. The cabinet had asked Communications Minister Dina Pule to report on all options available for Telkom within three months.

Malaysian memories still fresh

Steven Ambrose, head of strategy at consultancy World Wide Worx, said memories of SBC and Telkom Malaysia, which bought into Telkom and then sold out, were still fresh. The government did not want foreign investors to pillage the company. The deal might not have been in the country's best interests.

Pete da Silva, CEO of tech company Jasco, said this was a setback for Telkom's technological advancement. He stressed Telkom needs a global partner that excels in technology.

However, the deal would not have enabled KT to influence Telkom's structural changes or offer technical advice. This would have resulted in short-term foreign direct investment inflows and long-term negative outflows in terms of dividends.

Dobek Pater, ICT analyst at Africa Analysis, thought Telkom would have benefited from the cash injection and doubted that KT would increase its offer.

Pater said KT would have delivered a great deal of efficiency.

KT and Telkom had planned to enter a five-year co-source management services agreement to "formalise the relationship and identify areas of mutual strategic and business cooperation".

Ambrose said Telkom needs to privatise and dump its Africa expansion plans, which saw it burn its fingers in Nigeria through Multi-Links.

The Department of Communications admitted the need for Telkom to implement an "urgent turnaround strategy" and said "new options will be considered by both Telkom and government".

Source: Business Times via I-Net Bridge