Johannesburg – A national embarrassment is what experts call
the failed deal between Telkom [JSE:TKG] and the South Korean KT Corporation.
On Friday government announced that it did not support the
massive deal between the two telecommunications companies – after more than
nine months of negotiations.
André Wills, managing director of Africa Analysis, said one
had to ask why the deal was turned down at such a late stage. Government had
surely been part of the negotiations, and cabinet approval should have been a mere
KT, South Korea’s largest provider of telecommunications
services, wanted to acquire 20% of Telkom’s shares for R3.3bn. It had initially
offered R4.7bn, but last month reduced its offer following the decline in
Telkom’s share price over the past year.
The deal had the support of several experts, especially as
Telkom needs the injection of cash and expertise.
Arthur Goldstuck, managing director of World Wide Worx, said
the decision is not in the interests of either Telkom shareholders or
“It hangs a label around South Africa’s neck saying that we are
closed to business. It points to protectionism and an attempt to keep a
stranglehold on the country’s communications network.”
At Friday morning’s media conference Collins Chabane, Minister in the Presidency responsible for monitoring performance and
evaluation, confirmed that cabinet had turned down the transaction.
Government owns 39.8% of Telkom, and more than 50% if the
Public Investment Corporation’s stake is included.
Government spokesperson Jimmy Manyi stated that the decision
had been taken because government, via the department of communications, wants
to give all South Africans broadband by 2020.
Telkom is a strategic asset in
this effort. Government acknowledges that Telkom needs to put in place an
urgent turnaround plan, he said.
Communications Minister Dina Pule has to report to cabinet
within three months regarding Telkom’s options.
The news sent Telkom’s share price down to its lowest level
in eight years. It closed at R21 on Friday, a decline of 8.34%, and it has lost
44% of its value since the high of R37.50 in July last year.
“I think what we are seeing here is a struggle between
developed and developing markets,” said Wills.
“Interested parties have different priorities. What’s good
for Telkom may not be what government thinks is good for the company.”
According to Goldstuck, government's decision means a
protracted decline for Telkom. “We’ll have a long wait before the
telecommunications industry is free.”
For the man in the street this means that the price of
broadband services will not fall dramatically, and that the company will not
invest in new technology.
Marian Shinn, DA spokesperson on communications,
described government’s decision as short-sighted.
“If we turn our back on KT
Corp and the company looks for friendlier investment partners elsewhere on the
continent, South Africa will rank even lower on the list of technologically
advanced countries in Africa.”
Marius Croucamp, Solidarity’s spokesperson, declared the
decision a “fiasco”. In his view it could lead to Telkom having to cut costs
owing to a lack of capital, leading to the retrenchment of thousands of
The poor impression of South Africa created by this decision
will be extremely difficult to mend, he said.
Over the weekend the JSE said that it would review the
recent trades in Telkom shares.
Thursday saw significant trade in the company’s shares –
even before government’s announcement. This resulted in the Telkom share price
Experts attributed the trade to the fact that Telkom was to be
removed from the MSCI South Africa Index the next day, owing to the decline in
its market value.
The stock exchange told Bloomberg that it would refer the
matter to the Financial Services Board should further investigation be
For more business news in Afrikaans, go to Sake24.com.