Telkom in MOU with Korean firm

Johannesburg - Telecoms operator Telkom SA [JSE:TKG] said on Monday that it has entered into a memorandum of understanding (MOU) relating to a potential strategic venture with South Korean-based KT Corporation.

In October, Telkom said it had entered into discussions with KT to explore KT potentially acquiring a strategic equity shareholding of 20% in the post-issue ordinary share capital of Telkom.

"The MOU provides for an exclusive period of engagement and information exchange to enable the companies to confirm the areas of mutual strategic and business cooperation and envisaged benefits of the potential strategic venture (diagnostic review)," the group said in a statement.

The diagnostic review would commence immediately and Telkom said it would update shareholders in six weeks, when the cautionary announcement was renewed.

Telkom said on October that should the two companies reach an agreement, KT would buy Telkom ordinary shares, by way of a specific issue of Telkom shares, at a price of R36.06 per share. If implemented, this would result in KT having a 20% interest in the post-issue ordinary share capital of Telkom, worth about $600m (R4.7bn).

KT has a market capitalisation of about $10bn. In 2010, it reached circa $18.7bn of operating revenues with earnings before interest, tax, depreciation and amortisation of circa $4.7bn.

The group is a market leader in the Republic of Korea's fixed and broadband segment with an 86% and 45% market share respectively, and number two in the mobile business (32% market share, with approximately 16.8m subscribers).

Telkom advised shareholders to continue exercising caution when trading in its securities until a further announcement was made.