Hostile takeover may be on the cards after Telkom rejects Maseko offer

Telkom’s share price plunged 7% on Friday after the news that the state-affiliated fixed-line operator rejected a takeover bid by former CEO Sipho Maseko and Mauritius-based telecom company Axian Telecom. 

A hostile bid may be on the cards if Maseko’s consortium chooses to go straight to shareholders, circumventing Telkom’s management. 

In June, Telkom confirmed it had received an unsolicited offer led by former CEO Sipho Maseko and the Public Investment Corporation (PIC) to buy a substantial stake in the partly government-owned telecom firm.

At the end of May, Business Day reported that a consortium led by Maseko had amassed a war chest of about R12bn for a bid to take up equity in the fixed-line operator. Mauritius-based Axian, a partner in the bid, is expected to put up $500m (more than R9bn) of this, and Maseko’s investment firm, Afrifund, the remainder.

But even with letters from banks backing the consortium, Telkom management appears unconvinced after raising doubts last month about the investment consortium’s ability to execute and fund the proposal that would see Telkom’s fibre, cellphone towers and data centre assets combined with those of Axian to create a pan-African telecom infrastructure group.

Telkom CEO Serame Taukobong said at the time that the company did not need “a knight in shining armour” in an indication that he did not see the offer as appealing.

“The indicative proposal is not in the best interest of shareholders,” Telkom said in Friday's statement.

After dropping 7% when the news broke, Telkom's share price was 6.69% lower at close of trade on Friday. That means the company lost about R954-million in market value. So far in 2023, the stock is down 12.3%.

The company said it will not continue talks with the consortium led by the former CEO as it believes its current strategy would yield better value for shareholders.

Business Day understands that Maseko and his consortium approached Telkom management in an attempt to have a peaceful transaction. 

Maseko had already approached and received support from shareholders such as the PIC, indicating good relations with investors. It is possible that the consortium could use these relationships to mount a hostile bid for SA’s third-largest mobile operator. 

In business, a hostile takeover is when one group — the acquirer — attempts to take over a target company against the wishes of the target company’s management. The acquirer can achieve a hostile takeover by going directly to the target company’s shareholders or fighting to replace its management.

Under Maseko’s proposal, the government would sell 14% of its stake to the Maseko consortium, and the rest will come from institutional investors that exclude the PIC. That would see the consortium offering to buy up 35% of holdings from these investors. 

The PIC, which is unwilling to sell because it wants to participate in the upside, then forms another part of the consortium, bringing about 16% to the table, which gets the investor group over the 50% mark.

In essence, Maseko’s offer could still go through if shareholders agree to sell part of their stake. 

MTN expressed interest in taking over Telkom in July 2022, a move that would have propelled it to the status of SA’s largest mobile operator ahead of Vodacom.

That deal is estimated to have been worth R30bn, almost twice the current market valuation of the state-controlled company.

Mobile operator Rain tabled a formal, nonbinding proposal to merge with Telkom shortly thereafter, while investment firm Toto Consortium also reportedly made an offer, valued at R7bn, for a stake in Telkom.

But all three offers had been withdrawn by January after unsuccessful talks, and MTN has quelled speculation that the two parties may be warming to each other again.

Once a favourite among investors, Telkom has lost more than half of its stock market value as it tried to sell its towers and masts, and fibre businesses in bid to shore up profits and cut costs over the past two years. 

With Reuters

gavazam@businesslive.co.za