Antitrust fine may see KT opt out of Telkom deal

KT may cut the price of an offer to buy a stake in Telkom South Africa or even abandon the 3.8 billion rand ($505 million) transaction, Absa Asset Management and MMI Asset Management said.

Telkom, Africa’s largest fixed-line phone company, and Korea’s largest phone and Internet company, said on Oct. 14 they are in talks.

KT has offered 36.06 rand a share for 20 percent of Telkom, 36 percent higher than Pretoria-based Telkom’s current value. The stock has dropped by almost one-fifth since announcing talks with KT as it faces a possible antitrust fine of as much as 3.25 billion rand.

“The market is bracing itself for maximum damage,” Chris Gilmour, who helps manage the equivalent of $1 billion at Johannesburg-based Absa Asset Management, said by phone on Tuesday. “The money manager doesn’t own Telkom stock. KT might want to reduce the price and even opt out of the deal.”

Telkom needs a large partner to help it fight increasing competition, which has cut profit, excluding one-time items, every year since 2006, while a deal provides a growth opportunity in Africa for KT.

Telkom plans to capture 15 percent of South Africa’s mobile-phone market through its wireless service 8ta, which started in 2010. Telkom and KT declined to comment. The companies are exploring areas of mutual strategic and business cooperation, Telkom said on Jan. 27.

The Public Investment Corp., the state-owned South African money manager that is Telkom’s second-largest shareholder after the government with 10.9 percent, said on Oct. 18 it supports the deal. South Africa’s government owns a further 39.8 percent of Telkom.

“The declining Telkom share indicates the market doesn’t think KT will pay the full price,” Wayne McCurrie, a fund manager at Johannesburg-based MMI Asset Management, said on Monday. MMI holds 227,000 shares, or less than 0.1 percent of Telkom, according to data compiled by Bloomberg.

Telkom is facing charges of abuse of market dominance and anticompetitive practice by charging excessive prices for services to other industry participants before the Pretoria-based Competition Tribunal. The company has denied the charges at hearings that have been ongoing since 2009.

The Competition Commission, which makes recommendations to the Competition Tribunal, asked for the maximum fine of 10 percent of Telkom’s annual revenue.

Bloomberg