Telkom South Africa Ltd. (TKG) needs an urgent turn-around strategy to fulfill the country’s objective of rolling out broadband infrastructure to all citizens in the next seven years, according to the government.
The cabinet has asked Communications Minister Dina Pule to advise it about all the options that are available to Africa’s largest fixed-line phone company in three months, government spokesman Jimmy Manyi said in an e-mailed statement today.
Telkom’s proposed sale of a 20 percent stake to KT Corp. (030200) of South Korea will not go ahead as the government decided not to support it, the company said in a statement today. The government and Telkom will work on options for the company, said Manyi.
South Africa’s government owns 39.8 percent of Telkom’s shares while the Public Investment Corp., which invests state employees’ pensions, holds 10.9 percent of the Pretoria-based company’s stock.
“Telkom is a key and strategic asset in the rollout of this telecommunications infrastructure and in the effort to improve the skills of our citizens,” Manyi said in the statement.
KT, South Korea’s biggest phone and Internet provider, offered on May 8 to pay 25.60 rand a share, or about 2.68 billion rand ($311 million), for the stake, 29 percent below an Oct. 14 offer of 36.06 rand a share.
The government’s rejection of the deal shows it is unable to make tough business decisions, the opposition Democratic Alliance, the second-biggest party in the nation’s parliament, said in an e-mailed statement. “The government should sell its shares in Telkom to those who understand the need for sound business decisions in the interest of economic, rather than electoral, success,” said Marian Shinn, a DA member of parliament.
Telkom “desperately” needs an investment injection to revitalize the company so it can play a productive role, Shinn said.
Labor union Solidarity said it has taken a strong stand against the decision to oppose the transaction. “It boggles the mind that government, who proposed the transaction to Telkom, has now rejected it, especially in view of the fact that current government policy is supposed to focus on job creation,” said union official Marius Croucamp in an e-mailed statement.
The deal’s failure may mean Telkom will have to cut costs as it lacks capital, which would possibly lead to thousands of employees being retrenched, said the labor union.
Telkom will speak with the communications minister to discuss the decision and “seek to obtain clarity on the context of the decision given that KT, and the transaction, were introduced to Telkom by the government,” Pynee Chetty, a Telkom spokesman, said by e-mail.
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