Telkom turmoil escalates

By Kimberly Guest for Telkom
Johannesburg, 22 Oct 2007

Telkom CFO Kaushik Patel has resigned and will leave the company at the end of the month.

Friday`s announcement preceded weekend reports that the fixed-line giant was under investigation by the Financial Services Board (FSB) for insider trading.

This morning, FSB executive director of the directorate of market abuse Gerhard van Deventer confirmed the organisation was looking into trades running up to Telkom`s 3 September notification that it was in talks with Vodafone and MTN.

"I must stress though that this is a preliminary investigation to establish whether there is a need for an official investigation. The Business Times article which preceded this announcement quoted sources close to the talks. If that is true, then the people were acting outside of SA`s legislation," he explains.

In the two weeks preceding Telkom and MTN`s announcements, Telkom`s share price gained R23, or 15%, to R176.20 on 31 August. The company gained 8%, to close at R190.99 on 3 September.

Van Deventer says the need for a formal investigation will be decided at the FSB`s next meeting on 27 November.

Bad timing

Amid speculation that Patel`s departure and the FSB investigation may be linked, Telkom says there is no connection.

Lulu Letlape, the telecommunication utility`s group executive of corporate communications, explains: "The timing is unfortunate; however, I can say there is no link. Patel has been consulting with us on his departure since before the investigation began."

Patel says his finances are open to scrutiny. "I`m leaving for personal reasons, not because of some investigation. I can guarantee that I have nothing to do with any insider trading that the FSB may be looking into."

Although Patel would not say where he is going, he reveals that he has been approached by another state-owned entity.

All Hollywood

Meanwhile, analysts are concerned that the telco has lost its last remaining fully-instated executive at C-level. All six C-level executive positions are now held in an acting capacity.

Irnest Kaplan, MD of Kaplan Equity Analysts, explains: "It`s not just the management team we need to be worried about. Good people further down the ladder have to be affected by these moves and the board`s failure to appoint permanent people."

He adds: "It seems to me that the market sort of thinks that the MTN deal is going to go ahead and so management appointments don`t need to be made. If that is the case, I would recommend that people consider the role the Competition Commission is going to play in this."

Prodigal son

Letlape concedes the environment is difficult for staff. However, she says acting-CEO Reuben September is trying to communicate with the workforce as "much as he possibly can" to retain confidence.

Additionally, the company`s workforce may be buoyed by news that another executive will shortly return the fold.

Telkom and Vodacom have confirmed that Telkom`s ex-CTO Thami Msimango will return to the fixed-line operator as of 1 November. At this stage it is unclear what position he will take.

Says Letlape: "Further details about Msimango`s future role at Telkom will be communicated in due course."

Telkom shares closed at R183 on Friday. After opening this morning at a low of R176.55, the share price had returned to above the R180 mark by midmorning.