Firm offer will secure Telkom

By Martin Czernowalow for Telkom
Johannesburg, 09 Apr 2008

South African fixed-line operator Telkom will consider any firm takeover bids placed on the table, after rejecting an earlier approach by Dubai-based Oger Telecoms, it told shareholders this morning.

In a SENS announcement, Telkom says: "Oger Telecoms has submitted two non-binding letters expressing an interest in acquiring Telkom. Both letters clearly state that they... are not binding and should not be construed as a firm intention to make an offer..."

This informal bid was made earlier this year, when the Middle East operator went head-to-head with MTN in January to take a stake in SA's fixed-line incumbent. Oger Telecoms is a subsidiary of Saudi Oger, which holds 60% of local mobile operator Cell C.

The SENS notice also comes about a week after Telkom CEO Reuben September said the disposal of Telkom, or any of its investments, will only be considered if "compelling strategic rationale" supports the decision. He added that the board was not closing the door to potential suitors, but had a clear idea of the value it sought.

Exposed and appealing

According to analysts, it is to be expected that Telkom is increasingly becoming a takeover target for foreign investors, considering it is an attractive business, and finds itself in a vulnerable position in the local market.

BMI-TechKnowledge MD Denis Smit says he is not surprised by companies eyeing Telkom. "Telkom is certainly sale-able, if you consider their outlook and vulnerable position in the market, it is not surprising at all."

Smit says "oil dollars" are seen buying assets all over the world, with many countries' government-backed "sovereign wealth funds" seeking to diversify their investments.

Thus, he says, it makes sense for Saudi Oger to look at Telkom and the local telecoms market, given its links with Cell C. While Telkom's 50% Vodacom shareholding could be "tricky" to deal with in a takeover situation, Smit believes Vodafone could step in to take the interest.

"Telkom is vulnerable to takeover bids. It is facing a new fixed-line competitor and its progress into Africa, while successful, has been limited."

However, Smit feels Telkom would be a good acquisition for a foreign investor. "It's a good buy - Telkom offers a lot of possibilities and is a highly competent company."

Third time lucky?

Africa Analysis telecommunications and market analyst Dobek Pater believes Oger will most likely improve its offer and bid for Telkom again.

"Apart from price, Telkom will also be looking for an indication of how Oger and Cell C will co-operate closer post-takeover. Telkom is looking for a mobile strategy and will not sell its Vodacom stake until it can find a partner that can assist with this strategy."

Pater says Cell C would have to improve its performance in the market and increase its current 9% market share in SA.

"I'm not surprised that Telkom is increasingly a takeover target - it's a very attractive operator," he says, adding that it is only a matter of time and price before the fixed-line operator is taken over. This, Pater notes, could happen as early as next year.

Last week, Reuters reported that Oger Telecom would seek a "substantial" minority stake in Telkom, as a second stab at a takeover.

Oger CE Paul Doany said the company would seek management control of Telkom, and would combine Telkom's fixed-line assets with those of Cell C.

Market speculation is that Telkom could be worth R70 billion to R80 billion.