• Busa, BBC split unpacked

    Who will lose and who stands to gain as the business bodies cut ties, asks Solly Moeng.

  • Noakes soap opera

    How many millions more will be sunk into a seemingly pointless vendetta, asks Mandi Smallhorne.

  • Downgrade scenarios

    An analyst takes a look at how credit downgrades have affected countries around the world.

All data is delayed
See More

Criticism and praise after state pulls plug

Jun 10 2012 16:20
Edward-John Bottomley
Cape Town - The proposed transaction between Telkom and South Korea’s KT Corporation would have provided Telkom’s capital requirements for three years.

The money would also have set rating agencies and investors’ minds at ease, giving Telkom access to more debt.

KT would have bought 20% of Telkom for around R3bn, after its initial offer of almost R5bn was reduced following the decline in Telkom’s share price this year.

KT, as one of the world’s leading suppliers of fixed-line broadband, would also have brought Telkom significant expertise.

A week ago, government pulled the plug on the deal at the eleventh hour, despite more than nine months’ negotiations between the two companies.

At the presentation of the company’s year-end results on Friday, Jacques Schindehütte, Telkom’s chief financial officer, said he was “disappointed” that not everyone could see that the KT deal would have had a significant effect on Telkom’s prospects.

“The company has 15 months to expand its fixed-line and mobile data significantly, or serious cost interventions will be required. Had the KT-deal come through, this discussion would have been unnecessary.”

According to him there is no reason to panic now that KT is out of the picture, “but we will have to find an alternative to acquire the necessary expertise”.

Communications Minister Dina Pule told Sake24 that cabinet had decided not to support the deal because government did not want to dilute its stake in Telkom.

Government is Telkom’s biggest shareholder, with a stake of 39.8% – and more than 50% if that of the Public Investment Corporation is included.

Cabinet gave Pule a month to come up with options.

Some experts and business leaders expressed support for government’s decision. Cell C chief executive Alan Knott-Craig said government was right to be careful and he was not sure that foreign ownership of Telkom would be a good thing.

“Government learnt a lot when Southern Bell Corporation (SBC) had a stake in Telkom. That was not good for the country,” he said.

In the late 1990s the SBC (now AT&T) and Telekom Malaysia consortium acquired a 30% stake in Telkom. Instead of lowering prices and improving services, the company hiked retail prices sharply and Telkom was squeezed for dividends.

But Duncan McLeod, editor of the industry website TechCentral, says the market is vastly different from a decade ago. Telkom is now operating in a competitive and more regulated market and can certainly not get away with the same sort of exploitation.

Trevor Manuel, Minister in the Presidency at the head of the National Planning Commission, questioned government’s decision and said it was a mistake to think that government alone could improve infrastructure.

“Even when there is an attractive offer we can't see it. We as the state think we can deliver more cheaply than the private sector.”

But it's not entirely the end of the KT deal. Some analysts believe the companies might still enter into an adjusted agreement, or a new one which excludes shareholding.

In its presentation Telkom said it still believed the transaction was in its best interest and it would continue to have discussions with government in this regard.
government  |  kt corporation  |  telkom



Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Company Snapshot

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

Almost all working South Africans fear losing their jobs

Previous results · Suggest a vote