After months of protracted discussions around the sale of Telkom to Mvelaphanda and its consortium, the talks have been "suspended". However, talks with Vodafone are ongoing.
The utility released the announcement on the JSE yesterday, saying the talks had been suspended because of "market conditions and pricing considerations".
Telkom's group executive of investor relations Nicola White says the talks have been suspended and not terminated. "The current economic climate and the price of credit have put a damper on the offer from the consortium."
She says Telkom would like to get the best deal it can for its shareholders and the current economy will not allow for that for the time being. "However, should things change, we would welcome a renewal of talks."
Neither company has confirmed the possible value of the sale and even now Telkom is unwilling to disclose that information; however, it has been speculated to be valued at around R90 billion for the entire share issue.
Taking a beating
Telkom first acknowledged a bid from a consortium, made up of Tokyo Sexwale's Mvelaphanda Holdings, affiliated funds of Och-Ziff Capital Management Group and "other strategic funders", at the beginning of June. In line with JSE regulations, Telkom subsequently re-issued its cautionary on 15 July.
At the time, a source close to the deal said discussions were progressing well. While the talks between the companies had to some extent lost the market's interest, continued cautionary notices indicated the deal could go through.
However, a Telkom spokesperson, who asked to remain unnamed, said the fallout from the bankruptcy of international investment bank, Lehman Brothers, has affected Telkom's share price, which would drive down the value of the deal with Mvelaphanda.
The fall of the international investment bank has had an impact on most local businesses, Telkom and Mvelaphanda not the least of them. Telkom's share value took a consistent beating during August and it has been in even sharper decline since Lehman Brothers announced bankruptcy on Monday.
Telkom lost 12.6% of its market cap this week, closing at R114.50 on the JSE yesterday, compared with a R131 close last Friday. Since the talks started in June, Telkom's share price has lost a total of 24.2%.
Mvelaphanda has also been trading steadily down since June, losing 23.84% of its share value.
Low confidence
Senior Econometrix economist Tony Twine says it is not surprising that the deal did not go through. "It is understandable in these times and you will see many large capital deals on hold. It is because the uncertain global capital environment does not lend itself to making colossal decisions."
He says companies are shying away from deals, because the risk of doing nothing is smaller than the risk of making a possible costly mistake. He says it is unlikely any new deals will surface until the global financial markets regain some confidence.
MD of Kaplan Equity Analysts, Irnest Kaplan, agrees that global markets, including SA's, are under tremendous strain. "The financial markets over the last two weeks have been at their worst since 9/11."
He is not surprised that Mvelaphanda "choked" and believes it is unlikely there will be any new moves towards Telkom in the next few months.
Political motive?
Global Research Partners director Paul Booth believes there may be more underlying the deal than has been expressed.
"Behind Mvelaphanda is Tokyo Sexwale, who is a Zacob Zuma supporter, and with the political environment the way it currently is, there may well be a political angle to the break-off."
He says a political directive could be evident from either the Jacob Zuma camp or the followers of current South African president, Thabo Mbeki. "This might be the last chance for Mbeki supporters to make a little money from Telkom before they have to leave office. They could probably make more money and faster from Telkom selling off Vodacom than from the sale of the fixed-line business. They may simply not want to conclude a deal with any Zuma supporters."
However, he adds that Jacob Zuma may well prefer to have the deal listed under his own belt and called Sexwale away from the talks. "He may want to wait until he gets into office."
Look to Vodacom
Booth adds that talks with Mvelaphanda may be clouding the discussions between Telkom and Vodafone. Vodafone plans to acquire a portion of Telkom's stake in Vodacom and has asked Telkom to distribute remaining shares back to Telkom shareholders.
Telkom's SENS announcement yesterday reassured shareholders that talks with the Vodafone group over the sale of part of Telkom's stake in Vodacom are ongoing. White says talks with Vodafone are progressing nicely and the company will release more information around the deal "shortly".
"The deal with Mvelaphanda was dependant on the sale of Vodacom shares anyway; it way well be that they are going to complete them one at a time," adds Booth.
(Additional reporting by Iain Scott.)
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