Telkom seen as takeover target

Africa's biggest fixed-line phone operator could be an acquisition target for Gulf-based companies.

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By  Gugulakhe Lourie Published  March 10, 2009

Africa's biggest fixed-line phone operator, Telkom, could be an acquisition target for international firms seeking telecoms assets, a telecoms advisory firm said in a report published on Tuesday. Companies in the frame include Dubai's Oger Telecom and Kuwait's Zain.

"It's very possible that Telkom may become a target for acquisition yet again this year, despite it still being quite a sizeable buy - even without its mobile unit Vodacom Group," emerging-markets firm Delta Partners said in the report.

Telkom - which has a market capitalisation of more than 51 billion rand ($4.84 billion) - has sold a further 15 percent stake in Vodacom Group for 22.5 billion rand to Britain's Vodafone.

Vodacom, which is to be 65 percent owned by Vodafone, will be listed on the Johannesburg Stock Exchange and the remaining 35 percent stake of Vodacom held by Telkom will be distributed to Telkom's South African shareholders.

Delta Partners predicts that Telkom - without Vodacom on its balance sheet - will struggle to implement a clear strategy.

"Investors may lose patience as margins further decline, making itself a target for acquisition once again," it said.

"Any potential investor would have to bring synergies to the table, perhaps in the form of mobile expertise, to unlock further value within Telkom."

Last year a number of companies were interested in buying Telkom. Talks with a consortium led by South Africa's Mvelaphanda Holdings were suspended, and other interested buyers included MTN and Dubai-based telecom operator Oger Telecom.

Delta Partners said there is a confluence of factors in 2009 which is set to turn the South African telecoms industry around - allowing a "new breed" of operators to emerge.

Kristoff Puelinckx, managing partner at Delta Partners, said an international telecoms operator may enter the local market with the intention of striking while the iron is hot.

He wouldn't specify which operators may be seeking acquisition opportunities in South Africa.

But Kuwait's Mobile Telecommunications Co (Zain), which has more than $4 billion in funds raised for acquisitions, is keen on South Africa.

"We are interested in the South African market," Zain Africa Chief executive Chris Gabriel told Reuters last year.

Delta Partners said Cell C, South Africa's third-largest mobile operator, may be the vehicle that one of the regional players, like Zain, needs to get into the country.

It added that Telkom may acquire Cell C.

"Telkom needs the mobile experience that Cell C has," adding that if Telkom doesn't pursue Cell C, other international players will.

Telkom without Vodacom, the jewel in its crown, is reinventing itself as a converged information communication technology (ICT) player. It is also planning to reduce its stake in pay-television unit Telkom Media and eyeing growth opportunities in the rest of the continent.

However Delta Partners seems concerned about Telkom's transformation strategy. "The question now becomes: Will Telkom make money?," it said.

Britain's BT Group - which was the first incumbent phone company to focus on ICT solutions after it sold its mobile unit in 2001 - has failed to live up to market expectations.

"So while we do not deny an entry into ICT can produce revenue growth, the historical evidence is that it may simply dilute returns," brokerage firm Nomura said in a recent note.

But Nomura added that given Telkom's commitment to have some 35 percent of its revenues from outside South Africa it is possible that it will be a consolidator of this market. (Reuters)

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