Telkom boss Serame Taukobong says the telecom group got a good deal for its masts and towers business, despite the final price being almost half of what it expected when the transaction was first slated in 2021.
On Friday, the Telkom announced it had sold its towers business, Swiftnet, for almost R7bn, with some of the windfall likely to go towards paying debt.
Swiftnet owns and operates about 3,900 commercially viable masts and towers in SA. It generated a profit of R188m in the six months to September 2023.
JSE-listed Telkom, which is valued at R13.94bn, said on Friday it had sold the business to a consortium of equity investors led and managed by Actis, which has 70% of the purchaser’s shares. The balance is held by Royal Bafokeng Holdings for R6.75bn.
When Telkom tried to list Swiftnet in early 2022, the business was valued at about R13bn, based on a sum of the parts calculation by former CEO Sipho Maseko.
Business Day understands that initial listing plans were abandoned because market conditions allowed for a return of less than R10bn.
However, the market has turned since the initial valuation and Taukobong said he was confident the price is fair.
“We’re feeling very positive and excited about this transition. R13bn was many moons ago, when we were looking at listing before the Ukrainian war and life as we know it changed. If you look at the reality of where we are, I think it’s an extremely fair value,” he told Business Day.
“When we gave an indication to the market of value of the business, we gave a fair value consideration of R6.3bn. It [the deal] has certainly come in higher, so we’re quite positive [about] that.”
Fortify position
The market appears to agree with that assessment as Telkom share price gained 4.76% on Friday to close at R27.28, paring the loss for the year to date to 8.02%.
Taukobong said the transaction underscored the company’s commitment to fortify its financial position, cut debt and enhance liquidity.
“Beyond the financial implications, this transaction ensures seamless continuity for our related businesses, particularly Telkom Consumer and Openserve, by guaranteeing continued access to Swiftnet’s infrastructure under mutually beneficial terms,” he said.
The conclusion of the deal will cause Telkom to join rivals MTN and Cell C in selling their towers businesses, leaving Vodacom as the only domestic player that still owns the infrastructure.
The partially state-owned telecom group has been working on a plan to release billions of rand trapped in its sprawling structure, which includes properties, masts and towers, IT company Business Connexion and internet fibre operator Openserve.
The group set the break-up in motion in 2020 under Maseko, after concluding that most of its assets weren’t reflected in the market capitalisation.
Taukobong, who has been at the helm of the company for two years, said the deal “cements what we’ve been saying to the market”.
His thesis is simple: the transaction values one of Telkom’s smaller business units at about half of its current market cap, which “goes to show the story we’ve been telling that the share price does not truly reflect the sum of the parts”.
Regarding the value trapped in the rest of the businesses, he said: “Consumer for example is significantly bigger, and Openserve has 170,000km of fibre.”
Like all deals of this nature, it still has to clear regulatory hurdles, which Taukobong says is likely to take eight to 12 months.
“Actis sees long-term value in the Swiftnet opportunity and welcomes the continued association with Telkom as it continues to provide access services to Telkom Consumer and Openserve and as Actis continues to grow its digital infrastructure portfolio,” said managing partner David Cooke.
Actis is an infrastructure investment firm focusing on sustainability in energy, transportation, digital, real estate and private equity sectors.
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