Oger, MTN duel for Telkom

Johannesburg, 23 Jan 2008

Cellular operators Oger and MTN are to go head-to-head in a bid for South African fixed-line operator Telkom.

Yesterday, Telkom confirmed it had received a non-binding expression of interest from Oger Telecom. The company has interests in telecommunications operations in Turkey, the Middle East and in SA's third cellular operator, Cell C.

Additionally, ITWeb has established MTN is rekindling discussions with the fixed-line giant.

A source close to the companies reveals: "MTN wants to have another go at buying out Telkom. The investment bankers are already engaging in preliminary discussions. Yesterday's announcement regarding Oger will force MTN to up the urgency of these discussions."

MTN declined to comment on these allegations as it entered a closed period on 1 January. Listed companies are barred from making forward-looking or financial-related statements between the closing of a financial period and the reporting of the same.

ANC strategy

ITWeb first revealed MTN was bidding for Telkom in July. The companies confirmed talks were under way in September.

By the time discussions between the two operators broke down in November, ITWeb had established that the ANC, SA's ruling party, had orchestrated the talks. At the time, it was understood the ANC hoped a relationship with MTN would be more "amicable" than the current relationship with Telkom and 50% Vodacom shareholder Vodafone. Telkom's inability to reduce telecoms costs in SA has often strained the relationship with government.

Indications from inside the party are that the ANC will continue to support MTN's acquisitive efforts. An MTN-Telkom merger would provide government with an infrastructure investment into the rest of Africa.

"It is a company we know well and is chaired by political figure Cyril Ramaphosa," a source within the party says.

Oger's bid, on the other hand, may not receive the nod from the party as it "takes a chunk of the company outside the country". The ANC is believed to be favouring companies whose growth initiatives benefit SA's development agenda.

Money to spare

MTN's intention to re-enter the fray with the same financial offering may, however, be upset by a new player at the table.

"MTN hoped to take advantage of the generally depressed state of the market. Telkom's share price is feeling the heat of international market pressure and so MTN could enter at the same price offered last year, but a greater overall premium to shareholders. MTN's own shareholders may not favour the company upping its bid though," the source says.

Meanwhile, Saudi Oger announced on Monday that it had sold a 35% stake in Oger Telecoms to Saudi Telecom Company, for $2.85 billion in cash.

This, say analysts, leaves the international telco player cash-rich with options to invest.

Telkom says that, while it is not presently in discussions with Oger, its board will consider the Oger approach "along with other alternatives" as part of its mobile strategy review. MTN was not named in Telkom's cautionary notice.