Ring me: Ex-Telkom boss Sipho Maseko could be looking to buy it to facilitate a merger with MTN, challenging Vodacom’s dominance. Photo: Waldo Swiegers/Getty Images
During his eight-year tenure as Telkom chief executive until 2021, Sipho Maseko danced with Cell C and flirted with MTN as potential partners for the business.
Two years after his departure, analysts are raising the prospect that Maseko is behind a consortium looking to buy a controlling stake in the struggling operator. This could spark consolidation activity in South Africa’s telecoms space, which is still dominated by Vodacom, owned by British giant Vodafone.
Over the past month, speculation has grown that Maseko, through his investment vehicle Afrifund, is planning to buy a 35% stake for about R12 billion in the telecoms company, which still has the state as its biggest shareholder at about 40%.
Maseko’s bid is said to be backed by the Public Investment Corporation (PIC) — which already has a 10.9% stake in Telkom — and Mauritius-based Axian Telecom.
News of the possible bid came after Telkom shares plummeted more than 30% on a single day last month following warning of a R13 billion writedown and a decline of as much as 105% in its annual earnings. It has a share price languishing at levels similar to its 2003 listing, leading market commentators to see the company as being in a vulnerable position.
With Vodacom the dominant mobile operator in South Africa, and by far its most profitable, it has long been suggested that the second-biggest operator, MTN, should merge with Telkom in order to better compete.
Vodacom has the most subscribers in the country at 45.51 million. MTN is second with 35.88 million, while Telkom trails in at third place with 18.02 million subscribers. A merger between MTN and Telkom would bring the combined subscribers to 53.9 million, overtaking Vodacom.
It’s a tantalising prospect but has failed to materialise with MTN pulling out of talks to buy Telkom, yet again, in October.
Telkom informed shareholders that MTN had ended takeover discussions because it “was not in a position to provide MTN with assurances around exclusivity”. This came after Rain tabled an offer to Telkom, proposing it should buy Rain in exchange for shares in Telkom.
While Maseko wasn’t at the helm during the talks, he has entertained the prospect of merger before, along with the possible purchase of the struggling Cell C.
Independent analyst Simon Brown said Maseko has long been a proponent of consolidation, probably because Telkom is in that awkward space where it is big but not big enough in terms of its mobile business.
“He has always had this idea [of consolidation]. I am not sure if it was his primary driver, maybe later, when he was in Telkom. He was also looking at the numbers and saying that to reach critical mass, they need to tie up with somebody,” Brown said.
He explained that a tie-up between MTN and Telkom “does markedly create a duopoly in our telco space. We see it globally where, typically, it ends up being three mobile networks. I think in South Africa two big ones with a few smaller ones makes sense. Whether the Competition Commission agrees is another story.”
Makwe Masilela of Makwe Fund Managers was confident that Maseko would, at the very least, hold talks with MTN, should he acquire a controlling stake in Telkom.
“I think anyone in charge of Telkom should open that door. The reason why MTN and Telkom have not matched up until today is because MTN walked away, not because they were unhappy with what they saw, but because they needed exclusivity. A deal of that magnitude will definitely need some exclusivity for a certain period.”
Telkom “is still a good buy for MTN and Maseko might facilitate that”, Masilela said.
He said the market often encourages management buyout because the executive usually knows the company and this gives shareholders confidence. Maseko could have proposed to buy Telkom himself, when he was at the helm, and this would have been well received.
“It’s not far-fetched to think that Maseko will open the door for MTN. It’s easy for him to get support and sell the story. The likes of PIC won’t just agree to back him up if they were not convinced by his plan,” he said.
The PIC manages more than R2.5 trillion worth of assets.
Peter Takaendesa, a portfolio manager and head of equity at Mergence Investment Managers, said Maseko coming in and offering Telkom to MTN is feasible because the key challenge that stopped the previous transaction could be resolved by new management.
“Facilitating an MTN deal may not exactly be the reason why Maseko is trying to buy Telkom but that is a consideration one cannot rule out completely and say it’s off the table. This is because any investor, it does not have to be Sipho, could consider such a situation if Telkom manages to resolve its issues.”
Telkom has had operational and structural challenges for a while, which led it to embark on a restructuring that will see 15% of its workforce being slashed.
“Telkom has been involved in so many potential transactions before and part of the reason for their failure was issues to do with its current shareholding, where some of the shareholders were not willing to let go, while some of the players may have been concerned with regulatory approvals,” Takaendesa said. “So, if you are investing in Telkom, and then selling to someone else, you must make sure you have found a way to deal with all those issues.”
In 2015, Telkom tried to purchase Cell C with then chief executive Maseko calling it an “interesting proposition” but this was nothing new because in 2012 it was reported that Telkom and Cell C were “working on the finer details of a potential merger”. None of those transactions came to fruition.
It was reported that MTN was exploring whether to pursue an acquisition of a majority stake in Telkom to challenge Vodacom’s dominance of the telecommunications market.
In 2021, MTN made a takeover approach for Telkom in a deal that would’ve combined South Africa’s second- and third-largest telecommunications operators. Last year, MTN again approached Telkom about a takeover.
As far back as 2012, former Cell C chief executive Alan Knott-Craig said market consolidation was inevitable. “Margins are thinning and smaller operators’ ability to compete is being hampered by lack of scale,” he said.
This is something Maseko has always believed, according to Masilela.
“He [Maseko] has seen that we do need to consolidate at some point. Telkom was in talks with Cell C under his watch. The BCX deal was done by him as well. He has always embraced the fact that we need some consolidation in the sector. MTN executives know that as well, hence why they approached Telkom. Everyone in the industry embraces the fact that some consolidation needs to happen,” he said.