More than four years after Telkom sold its Nigerian Multi-Links unit for a loss, its last tie to that company comes to an end, as a legal spat between it and Blue Label Telecom is withdrawn.
Telkom sold out of the Nigerian CDMA unit, hiving it off to HIP Oils in 2011 at a large loss. However, the move - and the cancellation of a preceding deal a Blue Label unit had with Multi-Links - led to the locally listed company suing Telkom for early termination because it suffered damages.
As part of the sales deal, Telkom had agreed to indemnify HIP Oils for any amount that is successfully awarded to Africa Prepaid Services Nigeria (APSN) - which is 36.7% owned by local Blue Label Telecom - that goes over a $10 million threshold.
At the heart of the dispute was a 10-year super dealer contract between APSN and Multi-Links, which was cancelled early, after Telkom sold the unit. APSN was set to go through an arbitration process to claim $457 million from Multi-Links, which was defending the action, and lodged a counter-claim worth $123 million.
At the same time, Telkom was suing several other parties, including ICT veteran Mthunzi Mdwaba and former executive Thami Msimango, in a case that was set to go to court next August, after the telco claimed it was hoodwinked into staying in Nigeria.
Wasted money
Now, after spending more than R100 million on legal fees, Blue Label has withdrawn its case. Michael Campbell, head of investor relations, explains the company was aware of mounting costs, and the amount of time the matter was taking to get to court, as no date had yet been set.
APSN wanted damages for lost profit, because the dealer agreement was cancelled in November 2010, after Telkom said it was looking at exiting the struggling CDMA business in Nigeria. Campbell adds the listed company anticipated spending about another R100 million to take the matter further, and there was no guarantee costs would be contained when the matter was set down for trial.
In addition to Blue Label's move, Telkom has withdrawn its counterclaim, and will also no longer be suing Msimango and Mdwaba, the companies say in a joint statement. Telkom spokesperson Jacqui O'Sullivan explains this decision was taken because it was "prudent".
Telkom bought 75% of the CDMA operator for $280 million in March 2007, and almost two years later, bought out the balance for another $130 million. It subsequently wrote down the unit for more than its initial investments before selling it. It was not immediately clear how much Telkom had spent on legal fees, as the company has not disclosed this amount.
Both Telkom chairman Jabu Mabuza and Blue Label chairman Larry Nestadt expressed happiness that the disputes had been amicably resolved. However, Absa Investments analyst Chris Gilmour questions why Blue Label would spend so much and then drop its claim, unless it was clear it would not win.
However, Blue Label has a large prepaid electricity business in SA, which has been growing, but is reliant on municipalities awarding it tenders, and the state owns almost 40% of Telkom, which could suggest another reason for the legal action being withdrawn.
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