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Hanging up on Telkom
Wednesday, 20 June 2012 00:00
Written by Martin Czernowalow
As analysts and stakeholders try to make sense of government’s decision to pull the plug on Telkom’s proposed deal with Korea’s KT Corporation, South Africa’s oldest and largest telecoms operator seems be closer to extinction than ever.
The KT deal would have seen Telkom sell a 20% equity stake to the Korean group, for about R3.3 billion. Apart from the cash injection, Telkom would have purportedly also gained critical skills in areas that could have potentially offered growth for the company.
KT has a reputation for one of the deepest telecoms penetrations in history – and South Africa desperately needs to expand its broadband reach. Clearly, Telkom can not do this on its own, especially considering that fixed-line penetration has fallen from 5.5 million to less than 4 million in 12 years.
However, government – Telkom’s biggest shareholder, with a 40% interest in the group – decided to can the sale, for reasons which, at the time of writing, are yet to be revealed. Speculation – is that government decided to walk away mainly because the deal would have diluted its stake in the company.
Other talk is that government did not think that the price was right. But then, the state seems to place a higher value on a stake in Telkom, which is trading rather cheaply at the moment.
News of the state’s U-turn certainly did not go down well with investors, with Telkom’s share price tumbling 8.34%, to an eight-year low of R22.91.
While the entire debacle has not only left Telkom talking about “plan B” and possibly even “C”, it also coincided with the fixed-line giant reporting its first ever full-year loss, when taking discontinued operations into account, since listing on the JSE in 1993.
With operating revenue that was virtually fl at for the year, at R33.1 billion, its after-tax profit for the bits it still has left, was down 93%, at R179 million. The group slumped to a R90 million net loss, after impairments and a loss on the sale of Multi-Links.
In the days following the release of its financials, Telkom has tried to reassure its investors and stakeholders, with CEO Nombulelo “Pinky” Moholi saying the company has a clear strategy and sound vision. However, this strategy sounds remarkably like the one former CEO Jeffrey Hedberg unveiled during his tenure, and has yet to move the company forward with any measure of speed.
Government is right; Telkom does urgently need a turnaround strategy. What it does not need is meddling that will turn investors away and led to the company importing the skills and technology it needs when it could have benefited from a capital injection.
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