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Telkom confirms sale of Vodacom

Telkom today confirmed the key terms of the sale of a 15% stake in Vodacom, South Africa’s leading mobile phone operator, to UK-based Vodafone Group and the intended listing of Vodacom on the JSE.

Telkom formally confirmed today that a 15% stake in Vodacom will be sold to Vodafone for R22.5bn in cash, less Vodacom’s attributable net debt of R1.55bn. Telkom will distribute 50% of the after tax proceeds from the sale transaction to Telkom shareholders by way of a special dividend. The dividend will be paid upon closing of the transaction, which is expected to take place in the first half of 2009.

The transaction is subject to approval by 75% of Telkom shareholders, the competition authorities and the Independent Communication Authority of SA (ICASA). Irrevocable undertakings in support of the transaction have already been received from Telkom’s largest shareholders, the South African Government and the Public Investment Corporation (PIC).




This transaction will also result in Vodacom being converted to a public company, listed on the main board of the JSE. Telkom will distribute its remaining 35% stake in Vodacom to Telkom shareholders by way of an unbundling. Investors will, for the first time, have direct equity in South Africa’s largest mobile phone operator. Vodacom will be one of South Africa’s largest home-grown JSE-listed companies.

Telkom CEO Reuben September said the transaction would unlock significant value for Telkom shareholders in volatile markets and will allow the company to fully execute its core strategy. The shareholders agreement between Vodafone and Telkom placed several significant restrictions on both Telkom and Vodacom. Liberated from the restrictive shareholders agreement, Telkom can now act independently and is well positioned for future growth.

Furthermore, Telkom will no longer be restricted from offering mobile voice services in South Africa or making mobile acquisitions in Africa south of the Equator. Vodacom, in turn, will be Vodafone’s expansion vehicle in sub-Saharan Africa, excluding North Africa, Ghana and Kenya.

“The Telkom board is confident that this transaction will unlock significant value for shareholders, and will facilitate the transformation of Telkom into a leading converged information and communications technology (ICT) player on the African continent. The retained portion of the proceeds from the disposal will be used to accelerate the development of our mobile and data strategies, while also allowing us to selectively expand our geographic presence,” September said.

“Our approach will be to utilise the retained proceeds prudently with the aim of ensuring that Telkom remains an attractive and strongly competitive company after the transaction. Telkom will be well capitalised and will focus on its goal of becoming the leading ICT player on the African continent.”

Minister of Communications Ivy Matsepe-Casaburri said the sale of Vodacom would have a positive impact on South Africa as a nation.

“This transaction represents one of South Africa’s largest recent foreign direct investments and signals Vodafone’s confidence in the future of our country,” she said. “Furthermore, it enables Telkom to speed up its deployment of enhanced, fixed and mobile, services to South Africans. We are confident that this transaction is beneficial to the nation, as well as to Vodacom and Telkom, and look forward to them entrenching their positions as communications champions across the African continent.”

Background to the transaction

o Currently Telkom and Vodafone each own 50% of Vodacom, South Africa’s leading cellular phone company.
o As a result of the transaction, Telkom will sell a 15% stake in Vodacom to the UK-based Vodafone Group.
o Vodafone will pay Telkom R22,5bn in cash for 15% of Vodacom, less Vodacom’s attributable net debt of R1,55bn as of 30 September 2008.
o Telkom will distribute 50% of the after tax proceeds from the sale transaction to Telkom shareholders by way of a special dividend, net of any tax levied thereon. This dividend will be paid upon closing of the transaction, which is expected to take place in the first half of 2009.
o Vodacom will be converted to a public company and listed on the main board of the JSE, providing investors with direct equity in South Africa’s largest mobile phone operator.
o Telkom will distribute its remaining 35% stake in Vodacom to Telkom shareholders by way of an unbundling. Telkom shareholders will therefore also receive shares in Vodacom as an independently listed company.
o The Department of Communications (DoC) and the Public Investment Corporation (PIC), as major shareholders in Telkom, are supporting the transaction, as it has a number of benefits for South Africans and Telkom’s shareholders.

Who will own Vodacom after this process?


After the deal is concluded – Vodacom’s shareholders will be as follows:
o Vodafone will own 65%
o The remaining 35% will be listed on the JSE Limited and distributed to Telkom shareholders in proportion to their Telkom shareholding.

Why is Telkom selling Vodacom?

o This transaction allows Telkom to achieve an attractive value for its stake in Vodacom. The separation of Telkom and Vodacom will unlock value for Telkom shareholders.
o The shareholders agreement between Vodafone and Telkom placed several significant restrictions on both Telkom and Vodacom.
o The agreement prevented Telkom from offering mobile voice services in South Africa. Furthermore, the ability to expand into Africa south of the Equator was effectively limited to fixed-line operations only.
o The agreement also effectively prevented Vodacom from offering mobile phone services in Africa north of the Equator.
o Telkom could not realise the full benefit and potential synergies of the relationship.
o Telkom now has the freedom to deliver a full range of mobile services, enabling it to be more competitive in a rapidly changing telecommunications environment.

How will South Africa benefit?

o The sale of the Vodacom stake represents a major foreign investment and is a strong vote of confidence in South Africa by Vodafone.
o The listing of Vodacom will give all South Africans the chance to own shares in South Africa’s largest mobile phone operator.
o Vodacom will be one of the biggest listed companies by market capitalisation on the JSE, and one of the largest JSE listings in recent years.
o Telkom is planning to invest in a fixed-mobile network, which will deliver enhanced services, including in areas where cable theft continues to be a major problem. The money Telkom retains from selling Vodacom will also help Telkom deliver other essential services.
o The transaction will enhance competition in the telecommunications sector.

What are the benefits to Telkom?

o Telkom will be able to offer a fully converged (fixed, mobile and data) service through bundles, offering significant value to customers.
o The retained proceeds from the sale will enable Telkom to accelerate investments to execute its strategy, including those highlighted below, making Telkom stronger, more competitive and more technologically advanced.
o Telkom will be better placed to complement its fixed-line business with services in the mobile voice market, helping it defend its core voice revenues.
o Telkom will be able to enhance its information technology and data services, a necessity as IT and telecommunications converge.
o Telkom’s fixed-line and other businesses have been valued below Telkom’s listed peers. Having Telkom separately visible and independent from Vodacom should increase the value of Telkom shares.

What are the benefits to Vodacom?

o Vodacom will benefit from having Vodafone as a single majority shareholder with a single strategic vision.
o Vodacom will capture the full benefit of being part of the Vodafone Group, the world’s largest wireless operator by revenues with a best-in-class R&D, global expertise and product applications.
o Vodacom will be the exclusive investment vehicle for Vodafone acquisitions in most of sub-Saharan Africa.
o Vodacom will continue to be an empowered mobile player. The current Vodacom empowerment transaction is not influenced by this deal, and is entirely separate.
o The home-grown company will be headquartered in South Africa.

Who has to approve the transaction?

o The transaction must be approved by the South African competition authorities and the Independent Communications Authority of South Africa (ICASA).
o Vodacom’s listing must be approved by the JSE.
o 75% of Telkom’s shareholders have to vote in support of the deal. The South African Government (39.8%) and the PIC (15.5 %) have committed to vote in favour of the transaction.

How long will this take?

The final stage of the sale, the listing of Vodacom, is expected to be completed in the first half of 2009.


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The Big Change is a business strategy blog and newsletter published by Arthur Goldstuck, managing director of World Wide Worx, a leading technology research organisation based in Johannesburg, South Africa.

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