Govt rejects R3.3bn Telkom-KT deal

2012-06-01 15:30

Johannesburg - Telkom’s top shareholder, the South African government, has rejected KT Corp’s $385m offer for a 20% stake in the telecoms firm, potentially scuppering the South Korean firm’s first foray into fast-growing Africa.

Shares in Pretoria-based Telkom [JSE:TKG] plunged to an eight-year low on the news on Friday. The stock were 4.9% lower at R21.79 12:44 GMT, on track for their biggest daily percentage fall in eight months.

KT, South Korea’s No. 2 mobile operator, has been scouring for opportunities in Africa, Latin America and Eastern Europe seeking to grow earnings as competition back home heats up.

It last month trimmed its offer for the stake in Telkom, a fixed-line operator majority owned by the South African government, by nearly a third and bringing the total sale value down to about R3.3bn.

“With the reduced price the government feels that selling Telkom at this price would be a give away,” said Dobek Pater, a telecoms analyst at consultancy Africa Analysis.

Pater said the government may be betting on Telkom’s performance to improve at some point and could then be sold for more money.

“It’s a bit of a catch-22 because Telkom may not necessarily improve much,” he said.

Telkom, which is about 40% owned by South Africa’s government, has been fighting to rein in costs and return to growth, hit by the decline in traditional telephony and a costly failed expansion plan in Nigeria.

The company said the deal, which analysts say would dilute the government’s shareholding in the company to 32%, was presented to cabinet on May 30 and did not get the support it needed.

“Telkom was informed by the Minister of Communications that (the) cabinet had taken the decision not to support the transaction as proposed,” it said in a statement.

The company said it would discuss the implications of the cabinet’s decision with the minister. The government did not give reasons for the decision.

But Pater said the decision could have substantial impact on Telkom’s growth plans as the company was counting on the cash to fund part of its expansion.

“It’s still a bit of a 50-50 whether it is going to happen or not happen. It depends on what case the minister can state to the cabinet to try and change their opinion,” Pater said.

Telkom, which recently launched a mobile unit as part of its push into new markets, has also been struggling to keep up with bigger Johannesburg-based African mobile operators MTN Group [JSE:MTN] and Vodacom Group [JSE:MTN].