Korea Telecom (KT Corporation) has reportedly signed a preliminary agreement to acquire a 20% stake in fixed line incumbent Telkom South Africa, following almost six months of negotiations.
- KT Corporation will reportedly pay 25.6 South African rand (USD3.26) per share, according to Bloomberg, some 29% lower than the target price of ZAR36.06 announced in October 2011.
- The issuance by Telkom SA of new shares will dilute the South African government's total holding in the operator to less than 50%.
- According to Bloomberg, KT Corp and Telkom SA will enter into a five-year management agreement to formalise the relationship and identify areas for cooperation.
On 14 October 2011, Telkom SA announced that it had entered into discussions with Korea Telecom (KT Corporation) regarding a potential strategic venture that would result in KT Corporation acquiring an equity shareholding of 20% in the operator (see South Africa: 14 October 2011: Telkom South Africa Enters Talks with Korea Telecom over Sale of 20% Stake).
In an announcement to the Johannesburg Stock Exchange (JSE) last October, Telkom said that if the potential strategic venture is agreed, the equity investment would be implemented through a specific issue of new Telkom ordinary shares at an issue price of ZAR36.06 per share.
In December 2011 the operators entered into a memorandum of understanding (MOU) to hold exclusive negotiations and conduct a diagnostic review (see South Africa: 13 December 2011: Telkom South Africa and KT Sign MOU Seeking Strategic Venture).
Our Take
This announcement that KT Corporation has signed a preliminary agreement to acquire the stake in Telkom SA comes nearly six months after the deal was first announced in October last year. The completion of the transaction is reportedly dependent on the completion of certain preconditions, including the conclusion of the investigation by the Competition Competition against Telkom to the satisfaction of KT (see South Africa: 15 February 2012: South African Competition Commission Seeks to Fine Telkom USD454 Mil. for Excessive Pricing).
The issuance of new shares will dilute the South African government's total holding in the operator to less than 50%. At the end of March 2011, the government held a 39.8% shareholding in Telkom, Public Investment Corporation 10.9%, Telkom Treasury stock (Rossal No 65 (Pty) Ltd and Acajau Investments (Pty) Ltd) held 2%, and the remaining 47.3% of issued share capital was publicly listed (free float).