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.
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.