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TKG - Telkom - Announcement regarding the following proposed inter-conditional
transactions
Telkom SA Limited
(Incorporated in the Republic of South Africa)
(Registration number 1991/005476/06)
(JSE and NYSE share code: TKG)
(ISIN: ZAE000044897)
("Telkom")
ANNOUNCEMENT REGARDING THE FOLLOWING PROPOSED INTER-CONDITIONAL TRANSACTIONS:
1. The sale by Telkom of a 15% stake in Vodacom Group (Proprietary)
Limited ("Vodacom") to a wholly-owned subsidiary of Vodafone Group Plc
("Vodafone")
2. The distribution of 50% of the after tax sale proceeds by way of a
special dividend to Telkom shareholders ("Telkom shareholders") net of
any tax levied thereon
3. The listing of Vodacom on the main board of the JSE Limited ("JSE")
4. The unbundling of Telkom`s remaining 35% stake in Vodacom to Telkom
shareholders in South Africa and other eligible jurisdictions
1. INTRODUCTION
Telkom shareholders are referred to the cautionary announcements, the last of
which was published on 9 October 2008, regarding the receipt by Telkom of a non-
binding proposal from Vodafone.
Telkom shareholders are advised that Telkom, Vodafone, various subsidiaries of
Vodafone and Vodacom have signed binding transaction agreements (the
"Transaction Agreements"), pursuant to which:
1. Vodafone will acquire from Telkom an additional 15% of the entire
issued share capital of Vodacom for a cash consideration of ZAR 22.5
billion less the attributable net debt of Vodacom as at 30 September
2008 ("the Sale Transaction");
2. Telkom will distribute 50% of the after tax proceeds from the Sale
Transaction to Telkom shareholders by way of a special dividend, net
of any tax levied thereon ("the Distribution");
3. Vodacom will be converted to a public company and application will be
made for Vodacom to be listed on the main board of the JSE ("the
Listing"); and
4. Telkom will distribute the balance of the shares in Vodacom held by
Telkom (constituting 35% of the entire issued share capital of
Vodacom) to Telkom shareholders in South Africa and other eligible
jurisdictions, in proportion to their shareholdings in Telkom, by way
of an unbundling in terms of section 90 of the Companies Act 61 of
1973, as amended ("Companies Act") and section 46 of the Income Tax
Act 58 of 1962 as amended ("the Unbundling Transaction").
Further details of the Sale Transaction, the Distribution, the Listing and
the Unbundling Transaction (collectively, "the Proposed Transaction") are
set out in paragraphs 4, 5, 6 and 7 below.
2. RATIONALE FOR THE PROPOSED TRANSACTION
Benefits to Telkom
The board of directors and senior management of Telkom have undertaken an
extensive review of Telkom`s investment in Vodacom and have concluded that,
although Vodacom remains attractive and highly profitable, in order to maximise
future shareholder value it is preferable:
(i) for Telkom to focus on its core fixed-line business and pursue a
standalone growth strategy; and
(ii) for Vodacom to be a separately listed company.
Telkom`s existing shareholding in Vodacom is not optimal from a value creation
perspective as Telkom exercises joint control over Vodacom and is therefore
limited in its ability to realise the potential benefits of an integrated
strategy. Furthermore, the Vodacom shareholders` agreement ("Shareholders`
Agreement") limits Telkom`s ability to act independently and execute its
strategy.
On this basis, after evaluating the options available to Telkom, the board of
Telkom has decided to proceed with the Proposed Transaction given the compelling
strategic and financial rationale therefor, namely:
(i) to free Telkom from the Shareholders` Agreement, thereby enabling it
to explore mobile convergence opportunities;
(ii) to unlock value for Telkom shareholders; and
(iii)to enable the competitive repositioning of Telkom across the
information and communication technology ("ICT") sector, both in South
Africa and internationally.
The Proposed Transaction is expected to unlock significant value for Telkom
shareholders by providing support for the value of Telkom`s stake in Vodacom and
enabling a re-rating of Telkom`s fixed-line and other businesses, the current
see-through value of which is significantly lower than those of Telkom`s listed
peers.
Following the implementation of the Proposed Transaction, Telkom intends to
continue to focus on its core fixed-line business and to pursue its growth
strategy in, amongst others, the following ways:
i) with its own mobile capability, Telkom will be able to provide
converged fixed-line, mobile and data solutions to both the
residential and corporate markets;
ii) as an integrated service provider, Telkom will be able to bundle the
full range of communications products into attractive packages
offering significant value to customers;
iii) Telkom intends to expand into managed voice, managed data and IT
services and applications, and to diversify into new revenue growth
opportunities in adjacent markets, such as rich content and data
centres; and
iv) Telkom will pursue expansion opportunities across the ICT sector and
African continent, which meet Telkom`s pre-determined set of
investment criteria, enabling the business to grow internationally.
This is intended to reduce risk, enhance the diversity of Telkom`s
earnings and enable Telkom to participate in higher growth markets.
Benefits to Telkom shareholders
In addition to the aforegoing, the Listing will provide Telkom shareholders in
South Africa and other eligible jurisdictions with an opportunity to gain direct
exposure to a leading African communications company that provides world-class
mobile telephony services to more than 34 million individual customers in South
Africa, Tanzania, Lesotho, the DRC and Mozambique. Vodacom will capture the
full benefit of being part of Vodafone, the world`s largest mobile operator by
revenues with a best in class research and development platform.
Implementation of the Proposed Transaction will give Telkom shareholders the
opportunity to choose in which company/ies they would like to be invested. The
Unbundling Transaction will allow investors to attribute an appropriate value to
both Telkom and Vodacom which is in alignment with the specific dynamics and
prospects of the respective companies.
Vodafone has agreed with the Government of South Africa, inter alia, that the
Vodacom identity will remain visible on the African continent. In addition,
Vodafone has agreed that Vodacom will be the exclusive investment vehicle
through which it will make acquisitions in sub-Saharan Africa (excluding Ghana
and Kenya where Vodafone is already present).
Vodafone intends to ensure that the majority of directors on the board of
Vodacom will be non-executive directors with a suitable number being
independent non-executive directors in compliance with the King Report
on Corporate Governance for South Africa. The Chairman of Vodacom will
be an independent non-executive director. Following the Listing, Vodacom
intends to maintain a dividend policy in line with other similarly placed
companies listed on the JSE.
3. DESCRIPTION OF THE BUSINESS OF VODACOM
Vodacom is Telkom`s 50% owned mobile communications joint venture with Vodafone.
Vodacom is the largest mobile communications network operator in South Africa
with an estimated market share of approximately 55% as of 31 March 2008 based on
total estimated customers. Vodacom had 34.0 million customers as of 31 March
2008, of which 24.8 million were in South Africa. In addition to the leading
position in South Africa, Vodacom has a portfolio of growing operations in
Africa and is the number one operator in Tanzania, Lesotho, and the Democratic
Republic of Congo and the number two operator in Mozambique. The company is
also the leading wireless broadband service provider in South Africa with an
expanding total communications service offering across sub-Saharan Africa.
Vodacom is well positioned to capture growth from the fast-growing enterprise
market in Africa following the announcement of its intended acquisition of the
telecommunications assets of Gateway Telecommunications. Vodacom had
consolidated revenue of ZAR 48.2 billion, net profit attributable to equity
shareholders of ZAR 8.0 billion and cash flow from operating activities of ZAR
5.1 billion in the year ended 31 March 2008 and total assets of ZAR 34.2 billion
and equity attributable to equity holders of Vodacom of ZAR 11.8 billion as of
31 March 2008.
4. THE SALE TRANSACTION
The Sale Transaction will be implemented prior to the Listing and the Unbundling
Transaction.
Subject to the fulfilment of the conditions precedent set out in paragraph 8
below, Telkom will dispose of 15% of the entire issued share capital of Vodacom
to a wholly-owned subsidiary of Vodafone, Vodafone Holdings (SA) (Proprietary)
Limited ("VHSA").
The purchase price of ZAR 22.5 billion for the 15% stake in Vodacom has been
determined on a cash-free, debt-free basis. The consideration payable to Telkom
by VHSA will therefore be ZAR 20.95 billion, being ZAR 22.5 billion less the
attributable net debt of ZAR 1.55 billion ("the Net Purchase Price"). The net
debt of ZAR 1.55 billion includes an amount of ZAR 450 million which relates to
dividends received by Telkom post 30 September 2008. The Net Purchase Price is
payable in cash, 10 business days after the fulfilment or, where applicable,
waiver of the conditions precedent.
The Net Purchase Price will be further adjusted by deducting 15% of any
dividends (and any secondary tax levied thereon), declared or paid by Vodacom
during the period between signing and implementation of the Proposed
Transaction.
5. THE DISTRIBUTION
In considering the application of the proceeds arising from the Sale
Transaction, the directors of Telkom shall, in accordance with their fiduciary
duties, act in the best interests of all Telkom shareholders. On this basis, the
directors have recommended that 50% of the Net Purchase Price (as adjusted) be
retained by Telkom and the balance returned to Telkom shareholders by way of a
special dividend (net of any applicable taxes). This is a condition of the
Proposed Transaction and Telkom shareholders will be required to pass the
resolution declaring this special dividend in a general meeting.
The proceeds retained by Telkom will be invested in projects aligned with its
growth strategy as set out in paragraph 2 above or acquisitions which meet
Telkom`s rigorous investment criteria and which are projected to generate
returns well in excess of Telkom`s cost of capital. Further detail in this
regard will be provided to Telkom shareholders in the circular referred to in
paragraph 12 below.
6. THE LISTING
The Listing will take place prior to the Unbundling Transaction. The listing of
Vodacom on the JSE will be one of the largest listings in recent years and
Vodacom is expected to rank amongst the top 20 companies by market
capitalisation on the JSE.
7. THE UNBUNDLING TRANSACTION
In terms of the Unbundling Transaction, Telkom will distribute its remaining
shares in Vodacom (i.e. constituting 35% of the entire issued share capital of
Vodacom) ("the Unbundling Shares") to Telkom shareholders in proportion to their
shareholding in Telkom.
A mechanism shall be put in place so that shareholders in certain jurisdictions
outside of South Africa may receive cash instead of the Unbundling Shares if
such receipt would require registration or approval under relevant local
securities laws.
Following the implementation of the Proposed Transaction, it is anticipated that
Vodafone will hold 65% of the ordinary shares in Vodacom.
8. CONDITIONS PRECEDENT
The Sale Transaction, the Distribution, the Listing and the Unbundling
Transaction are inter-conditional so that none of them will be implemented
unless the others become unconditional. Once all the conditions have been met,
the Proposed Transaction will be implemented in the following sequence:
i) first, the Sale Transaction;
ii) second, the Listing;
iii) third, the Unbundling Transaction; and
iv) fourth, the Distribution.
The Sale Transaction is conditional upon Telkom shareholder approval in terms of
JSE Listings Requirements. The Sale Transaction is further subject to, inter
alia, the fulfilment, or where applicable, waiver, of all regulatory and
statutory approvals and consents as may be necessary, including, inter alia:
i) the South African Competition Authorities;
ii) the Tanzanian Competition Authorities; and
iii) the Independent Communications Authority of South Africa.
The Listing is subject to approval by the JSE. The declaration of the
Distribution is subject to the approval by a majority of Telkom shareholders in
general meeting.
The Unbundling Transaction is subject to, inter alia, the fulfilment, or where
applicable, waiver, of the following conditions precedent:
i) approval of the Unbundling Transaction by 75% of Telkom shareholders
in general meeting in accordance with section 228 of the Companies
Act; and
ii) approval by the JSE of the Listing.
The conditions precedent referred to above must be fulfilled within 12 months of
the signature date of the Transaction Agreements, or such other later date as
may be agreed by the parties.
9. FINANCIAL EFFECTS ON TELKOM
The unaudited pro forma financial effects set out below are included for the
purpose of illustrating the effects of the Sale Transaction, the Distribution
and the Unbundling Transaction on Telkom`s earnings, diluted earnings, headline
earnings, diluted headline earnings, net asset value and net tangible asset
value, per ordinary share of Telkom, for the year ended 31 March 2008.
The board of directors of Telkom is responsible for the unaudited pro forma
financial effects below. These unaudited pro forma financial effects are
presented for illustrative purposes only and because of their nature, may not
give a fair reflection of Telkom`s financial position, changes in equity,
results of operations or cash flows following implementation of the Proposed
Transaction.
Per Telkom share (cents) Before the After the Percentage
Proposed Proposed change
Transaction(1) Transaction(5)
Basic earnings(2) 1,565.0 4,327.5 177%
Diluted earnings(3) 1,546.9 4,277.6 177%
Headline earnings(2) 1,634.8 1,010.5 -38%
Diluted headline 1,616.0 998.8 -38%
earnings(3)
Net asset value(4) 6,570.3 7,221.6 10%
Net tangible asset value(4) 4,874.8 5,948.9 22%
Notes:
1. Based on the published audited annual results for the financial year ended
31 March 2008.
2. Basic earnings per share and headline earnings per share are based on 509.6
million shares, being the weighted average number of shares in issue
(excluding treasury shares) for the financial year ended 31 March 2008.
3. Diluted earnings per share and diluted headline earnings per share are
based on 515.5 million shares, being the weighted average number of shares
in issue for the financial year ended 31 March 2008.
4. Net asset value per share and net tangible asset value per share are based
on 499.5 million shares, being the total number of shares in issue of 520.8
million less treasury shares of 21.3 million as at 31 March 2008.
5. The "After the Proposed Transaction" column is calculated on the following
basis:
i) the 15% stake in Vodacom was sold to Vodafone with effect from 1 April
2007;
ii) the Net Purchase Price from the Sale Transaction was received on 1
April 2007;
iii) the Distribution (net of applicable taxes thereon) took place on 1
April 2007;
iv) interest was earned on the Net Purchase Price at an after tax rate of
8.6% for the period from 1 April 2007 to 31 March 2008; and
v) the net profit after tax arising from the Sale Transaction and taxes
in respect of the Distribution have been excluded from the calculation
of headline earnings per share and diluted headline earnings per
share.
10. DIRECTORS` OPINION AND RECOMMENDATION
The directors of Telkom have considered the terms and conditions of the
Proposed Transaction and are of the opinion that the Proposed Transaction
will ultimately enhance shareholder value for Telkom shareholders.
Accordingly, the directors of Telkom are in favour of the Proposed
Transaction and intend to vote, in respect of any Telkom shares held by
them at the date of the general meeting, in favour of the resolutions
necessary to approve and implement the Proposed Transaction. The directors
recommend that Telkom shareholders also vote in favour of such resolutions.
11. SHAREHOLDER SUPPORT
Telkom shareholders are referred to the cautionary announcement on 9
October 2008 which indicated that the South African Government is
supportive of the Proposed Transaction, subject to finalising the
Transaction Agreements. Telkom shareholders are advised that the South
African Government and the Public Investment Corporation Limited (PIC),
which, as of 30 September 2008, directly or indirectly owned 39.8% and
18.1% of Telkom`s issued share capital, respectively, have now provided
irrevocable undertakings to vote in favour of the Proposed Transaction.
12. POSTING OF CIRCULAR
A circular providing further information on the Proposed Transaction and
containing a notice of general meeting is expected to be posted to Telkom
shareholders in the first quarter of 2009.
13. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENTS
Telkom shareholders are advised that the cautionary announcements referred
to in the first paragraph of this announcement are hereby withdrawn and
caution is no longer required to be exercised by Telkom shareholders when
dealing in Telkom`s securities.
Pretoria
6 November 2008
Financial advisers to Telkom
JPMorgan Chase Bank N.A. and IDG Financial Services (Pty) Ltd
Transaction sponsor to Telkom
J.P. Morgan Equities Ltd
South African legal advisers to Telkom
Werksmans Inc. and Mchunu Koikanyang Inc.
US legal advisors to Telkom
Paul, Hastings, Janofsky & Walker LLP
Financial advisers to the South African Government
Morgan Stanley South Africa (Pty) Ltd and Rand Merchant Bank, a division of
FirstRand Bank Limited
Legal advisers to the South African Government
Edward Nathan Sonnenbergs Inc.
Special note regarding forward looking statements
Many of the statements included in this announcement constitute or are based on
forward looking statements within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995, specifically Section 27A of the U.S. Securities
Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of
1934, as amended. All statements, other than statements of historical facts,
including, among others, statements regarding Telkom`s ability to successfully
complete the Proposed Transaction and its effects on Telkom`s operations,
Telkom`s ability to implement its mobile strategy and any changes thereto,
Telkom`s future financial position and plans, strategies, objectives, capital
expenditures, projected costs and anticipated cost savings and financing plans,
as well as projected levels of growth in the communications market, are forward
looking statements. Forward looking statements can generally be identified by
the use of terminology such as "may", "will", "should", "expect", "envisage",
"intend", "plan", "project", "estimate", "anticipate", "believe", "hope", "can",
"is designed to" or similar phrases, although the absence of such words does not
necessarily mean that a statement is not forward looking. These forward looking
statements involve a number of known and unknown risks, uncertainties and other
factors that could cause Telkom`s actual results and outcomes to be materially
different from historical results or from any future results expressed or
implied by such forward looking statements. Telkom caution you not to place
undue reliance on these forward looking statements. All written and oral forward
looking statements attributable to Telkom, or persons acting on Telkom`s behalf,
are qualified in their entirety by these cautionary statements. Moreover, unless
Telkom is required by law to update these statements, Telkom will not
necessarily update any of these statements after the date of Telkom`s most
recent annual report on Form 20-F filed with the US Securities and Exchange
Commission (SEC), either to conform them to actual results or to changes in
Telkom`s expectations.
Telkom filed an annual report on Form 20-F with the US SEC, for the year ended
31 March 2008 on 18 July 2008. This annual report includes a detailed
description of risk factors that may affect its business. For further
information you should refer to the Form 20-F and other filings with the US SEC,
which are available on Telkom`s investor relations website at
www.telkom.co.za/ir.
THIS IS NOT AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES AND SECURITIES
MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION OR AN
EXEMPTION FROM REGISTRATION. ANY PUBLIC OFFERING OF SECURITIES TO BE MADE IN
THE UNITED STATES IS REQUIRED TO BE MADE BY MEANS OF A PROSPECTUS THAT MAY BE
OBTAINED FROM TELKOM AND/OR VODACOM AND THAT CONTAINS DETAILED INFORMATION ABOUT
VODACOM AND ITS MANAGEMENT, AS WELL AS FINANCIAL STATEMENTS. TELKOM AND VODACOM
HAVE NO CURRENT INTENTION OF MAKING ANY PUBLIC OFFERING OF VODACOM SECURITIES IN
THE UNITED STATES THAT WOULD REQUIRE REGISTRATION.
Date: 06/11/2008 11:00:01 Supplied by www.sharenet.co.za
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