Wrap Text
Disposal of Telkom’s Masts and Towers Business Housed in Swiftnet SOC Limited and Withdrawal of Cautionary
TELKOM SA SOC LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1991/005476/30)
Share code: TKG
JSE bond code: BITEL
ISIN: ZAE000044897
("Telkom" or the "Company")
DISPOSAL OF TELKOM'S MASTS AND TOWERS BUSINESS HOUSED IN SWIFTNET SOC LIMITED AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders of Telkom ("Shareholders" or "Telkom Shareholders") are referred to the cautionary
announcements released on the Stock Exchange News Service ("SENS"), the last of which was dated 19
February 2024, which advised that Telkom was in exclusive negotiations with a preferred bidder, being a
consortium of equity investors (including a Black Economic Empowerment ("BEE") partner), (collectively the
"Consortium"), led and managed by a reputable private equity firm, in respect of the potential disposal of its
masts and towers business housed in its wholly-owned subsidiary, Swiftnet SOC Limited ("Swiftnet").
The board of directors of Telkom (the "Board") is pleased to announce that Telkom has entered into a sale
agreement ("Sale Agreement") with an entity incorporated by the Consortium for the purpose of the acquisition
and comprising: (i) an infrastructure fund managed by a subsidiary of Actis LLP ("Actis"); and (ii) a vehicle
owned by Royal Bafokeng Holdings Proprietary Limited ("RBH") as its BEE partner, in connection with the
proposed disposal by Telkom to such acquisition vehicle of all of its shares (comprising 100% of the issued
shares) in, and all or part of its claims on loan account against, Swiftnet (the "Disposal").
The Disposal constitutes a Category 1 transaction in terms of the listings requirements of the JSE Limited
("JSE Listings Requirements") in respect of Telkom, as the consideration for the Disposal exceeds 30% of
the market capitalisation (excluding treasury shares) of Telkom. Consequently, implementation of the Disposal
is subject to, among other suspensive conditions detailed below, the approval of Telkom Shareholders by way
of an ordinary resolution. A circular (the "Circular") containing full details of the Disposal, and convening an
extra-ordinary general meeting to approve the Disposal, will be sent to Shareholders in due course in
compliance with the JSE Listings Requirements. The salient dates and times related to the Disposal, including
the date of the general meeting, will be announced on SENS on the day of issue of the Circular.
Key Highlights:
• Disposal is in line with stated value-unlock strategy, which includes considering non-core
assets for disposal
• Purchase consideration represents an enterprise value of R6,75 billion
• Proceeds to be utilised to primarily pay down Telkom debt, thereby strengthening Telkom's
balance sheet and enabling it to release free cash flow for investment in Telkom's core
businesses and deployment in pursuit of growth opportunities
Background and Rationale for the Disposal
The Board has previously communicated its view that Telkom's market capitalisation does not represent its
intrinsic value, and that it will explore all strategic options to unlock value. The Disposal is in line with such
value-unlock strategy and involves the disposal of a non-core asset, allowing Telkom to reduce debt from the
Disposal proceeds.
In addition, Telkom has ambitious growth plans across its business units, particularly for Openserve (South
Africa's leading wholesale infrastructure connectivity provider with the largest open-access network across
South Africa) and Telkom Consumer (South Africa's largest fixed broadband provider measured by network
deployed, an internet service provider and, together with its mobile network, a converged communications
provider). The reduction of Telkom debt through application of the Disposal proceeds will strengthen Telkom's
balance sheet and enable Telkom to release free-cash-flow for investment in Telkom's core businesses and
deployment in pursuit of growth opportunities.
The Disposal has the support of the Board, which recommends that Shareholders vote in favour of the
resolution to approve the Disposal.
About the Purchaser
The purchaser is Towerco Bidco Proprietary Limited (the "Purchaser"), an entity incorporated by the
Consortium for the purpose of the acquisition and comprising: (i) an infrastructure fund managed by Actis,
which will hold the majority of the issued shares of the Purchaser; and (ii) RBH, which will hold no less than
30% of the issued shares of the Purchaser.
Actis
Actis is a leading global investor in sustainable infrastructure, delivering competitive returns for institutional
investors and measurable positive impact for the countries, cities and communities in which it operates. Actis
invests in structural themes that support long-term, equitable growth in defensive, critical infrastructure across
energy transition, digitalisation transition, and supply chain transformation.
The firm's decades of global experience, operational know-how and strong culture allows it to create global
sustainability leaders at scale. Since inception, Actis has raised US$25 billion to invest in a better tomorrow.
Over the last two decades Actis has deployed circa. US$1.4 billion in investments in South Africa. Digital
infrastructure represents an important sector for Actis. The firm has committed more than US$1.5 billion into
the sector globally and digital infrastructure will continue to be an important part Actis' investment strategy.
Actis is a signatory to the United Nations backed Principles for Responsible Investment ("UNPRI"), an investor
initiative developed by the United Nations Environment – Finance Initiative. The firm has consistently been
awarded the highest rating score in the UNPRI independent assessment.
For further detail on Actis please refer to www.act.is
Royal Bafokeng Holdings
RBH is an African community investment holding company with a unique responsibility of preserving and
growing the financial capital of the Royal Bafokeng Nation ("RBN"). RBH is a long-term investor with a legacy
of acquiring significant stakes in high growth, defensive sectors and high-quality companies with established
track-records. RBH actively manage a diverse portfolio consisting of listed and unlisted assets in a range of
geographies and sectors, including telecoms, infrastructure, property, financial services, resources and
industrials. RBH is a B-BBEE Level 1 contributor.
For further detail on RBH please refer to www.bafokengholdings.com
Description of Swiftnet
Swiftnet's core business involves generating revenue from leasing space on its owned mast and tower related
infrastructure to customers, mainly mobile network operators, enabling such customers to deliver connectivity
to their respective subscribers or customers and/or operate wireless networks.
Swiftnet is one of the largest owners, operators and developers of masts and towers infrastructure in the South
African market. It owns approximately 3 900 commercially viable masts and towers in South Africa.
Particulars of the Disposal
Introduction
On 20 March 2024 (the "Signature Date"), Telkom and the Purchaser entered into the Sale Agreement,
pursuant to which the Purchaser will acquire from Telkom all of the issued shares of, and all or part of the
claims of Swiftnet (the "Sale Equity"), subject to salient terms below. The Sale Agreement is governed by the
laws of South Africa.
Purchase Consideration
The aggregate cash consideration payable for the Sale Equity by the Purchaser in cash to Telkom on the
Closing Date (as defined below) will be calculated with reference to an enterprise value of ZAR6 750 000 000
(six billion, seven hundred and fifty million South African Rand) (the "Base Purchase Price"), being the base
value of Swiftnet on a debt free cash free basis and before considering the adjustments mentioned below.
The Base Purchase Price will be subject to the following adjustments: (i) positive adjustment for any cash; (ii)
if applicable, a negative adjustment for the Continuing Telkom Loan (as defined below); (iii) negative
adjustment for any debt (excluding, inter alia, if applicable, the Continuing Telkom Loan (as defined below));
(iv) if applicable, negative adjustment for capital expenditure; and (v) positive or negative adjustment for
working capital, with each of these adjustments to be calculated as at the Effective Date (as defined below)
(the "Total Purchase Price").
In addition, interest (at a rate of Prime minus 5%) will accrue (for the benefit of Telkom) on the Total Purchase
Price from the Effective Date (as defined below) up to (and including) the Closing Date.
The Purchaser will fund the purchase consideration from both equity and third-party debt.
Telkom Shareholder Loan
As at the date of this announcement, an amount of circa R360 000 000 (three hundred and sixty million Rand)
remains outstanding under a shareholder loan advanced by Telkom to Swiftnet (the "Existing Shareholder
Loan"). At the Closing Date, a portion of the Existing Shareholder Loan of up to R225 000 000 (two hundred
and twenty-five million Rand) may remain outstanding as payable by Swiftnet to Telkom together with
applicable interest on the outstanding loan amount until fully settled (the "Continuing Telkom Loan"). To the
extent that this occurs, the Continuing Telkom Loan will not be transferred to the Purchaser (and will be
excluded from Sale Equity) and the Base Purchase Price will be adjusted accordingly as noted above.
Suspensive Conditions and Termination
The Disposal is subject to the fulfilment or, to the extent permissible, waiver of the following suspensive
conditions contained in the Sale Agreement (the "Suspensive Conditions"):
• given that the Disposal constitutes a Category 1 transaction for Telkom in terms of section 9 of the JSE
Listings Requirements, Telkom Shareholders having passed an ordinary resolution approving the
Disposal;
• approval for the implementation of the Disposal having been obtained from the South African
competition authorities in accordance with the requirements under the Competition Act, 1998;
• approval for implementation of the Disposal, which results in a change of control of Swiftnet licences,
having been obtained from the Independent Communications Authority of South Africa in accordance
with the requirements of the Electronic Communications Act, 2005;
• approval, to the extent necessary, of the applicable regulatory authorities, for the direct and/or indirect
capital structure of the Purchaser;
• the Purchaser having converted their credit approved long-form debt term sheets into acquisition debt
financing agreement/s with its third-party lenders for the provision of debt funding for the Disposal, and
such agreement/s becoming unconditional in accordance with their terms;
• the conclusion of a transitional services agreement (described below) and amendments to certain
operational agreements to which Swiftnet is a party;
• an amendment of the Existing Shareholder Loan agreement to make provision for the Continuing
Telkom Loan, to the extent applicable at the Closing Date; and
• no material adverse change occurring in accordance with the provisions of the Sale Agreement.
Each of the Suspensive Conditions above have a specific fulfilment date, and all the Suspensive Conditions
must either be fulfilled or waived (to the extent permitted) within 15 months from the Signature Date of the Sale
Agreement (with an automatic extension of 3 months if the regulatory approvals are not timeously obtained or
such longer period as the parties may agree). If the Suspensive Conditions are not satisfied or waived by the
relevant party on or before the relevant fulfilment date, then the Sale Agreement will automatically terminate.
Pre-Completion Undertakings
Telkom has given certain customary undertakings to operate the business of Swiftnet in the ordinary course
and not to take certain actions in relation to the business of Swiftnet during the period between the Signature
Date of the Sale Agreement and the Closing Date (as defined below).
Warranties and Indemnities
The Sale Agreement contains certain warranties and indemnities in favour of the Purchaser which are
customary for a transaction of this nature, and the warranties and specific indemnities are subject to customary
financial and other limitations of liability.
Restrictive Covenants
Telkom has provided customary non-compete and non-solicitation undertakings in respect of tenants, suppliers
and employees of Swiftnet. The restrictions will apply for a period of 24 months from the Closing Date (as
defined below).
Other Significant Terms
A six month transitional services arrangement (with an option to renew for a further six months) is being
implemented to ensure the continuity in the operation of Swiftnet's business post the Closing Date (as defined
below).
Effective Date and Closing Date
The Sale Agreement will take full legal effect on the last day of the month preceding the month in which all of
the Suspensive Conditions have been fulfilled or, to the extent legally permissible, waived (the "Effective
Date").
Within 20 business days of the Effective Date, Telkom is required to prepare and deliver a closing statement
supported by effective date management accounts ("Closing Statement") to the Purchaser, which Closing
Statement will confirm: (i) the provisional purchase price adjustments to be made to the Base Purchase Price
to arrive at the Total Purchase Price; and (ii) the total amount of interest accrued on the Total Purchase Price,
payable by the Purchaser to Telkom (the aggregate of which being the "Provisional Consideration").
The Provisional Consideration is required to be paid by the Purchaser on the 15th (fifteenth) business day after
the delivery of the Closing Statement (the "Closing Date"), and against such payment the Disposal will close
and take effect and delivery of the Sale Equity will take place.
Within 60 business days of the Effective Date, Telkom is required to procure that the effective date
management accounts are audited ("Audited Effective Date Accounts") and delivered to the Purchaser. After
having received the Audited Effective Date Accounts, the Purchaser is required to deliver to the Seller a
calculation statement of the final consideration ("Final Consideration") with reference to the Audited Effective
Date Accounts ("Final Consideration Statement"). The Seller will have 10 business days to review the Final
Consideration Statement and either confirm its agreement with the Final Consideration Statement or, in the
event of dispute, such dispute will be finally resolved by an independent third party expert as provided for in
the Sale Agreement.
In the event that the Final Consideration is greater than the Provisional Consideration, the Purchaser shall pay
the difference, on a Rand-for-Rand basis to Telkom. In the event that the Final Consideration is less than the
Provisional Consideration, Telkom shall re-imburse the Purchaser the difference, on a Rand-for-Rand basis,
including interest accrued on such amount from the Closing Date until the date of settlement.
Use of Proceeds
As detailed above, Telkom will use the proceeds of the Disposal primarily to reduce Telkom's debt to
strengthen Telkom's balance sheet and enable Telkom to release free-cash-flow for investment in Telkom's
core businesses and deployment in pursuit of growth opportunities.
Financial Information on Swiftnet
Net Asset Value
The net asset value of Swiftnet as at 31 March 2023 and 30 September 2023 was R806.4 million and R952.7
million, respectively.
Profit After Tax
The profit after tax attributable to Swiftnet for the twelve months ended 31 March 2023 was R584 million, and
the profit after tax attributable to Swiftnet for the six months ended 30 September 2023 was R321 million.
EBITDA
The earnings before interest, taxation, depreciation and amortisation ("EBITDA"), and after IFRS 16: Leases,
attributable to Swiftnet for the twelve months ended 31 March 2023 was R896 million, and the EBITDA, and
after IFRS 16: Leases, attributable to Swiftnet for the six months ended 30 September 2023 was R488 million.
The information above was extracted from Telkom's interim results for the six months ended 30 September
2023, and its audited results for the twelve months ended 31 March 2023, both of which were prepared in
accordance with the JSE Listings Requirements, SAICA Financial Reporting Guides, International Financial
Reporting Standards and the Companies Act, No. 71 of 2008 (as amended) ("Companies Act").
Categorisation of the Disposal and Shareholder Approval
The Base Consideration measured against the market capitalisation (excluding treasury shares) of Telkom, as
at the close of business on Wednesday 20 March 2024, results in a percentage ratio of more than 30%.
Accordingly, the Disposal is classified as a Category 1 transaction in terms of section 9.5(b) of the JSE Listings
Requirements and as such requires Shareholder approval by way of an ordinary resolution of Shareholders,
which will require the support of more than 50% of the votes exercised thereon at a general meeting of
Shareholders in terms of paragraph 9.20 of the JSE Listings Requirements.
For the avoidance of doubt, the Disposal does not constitute a disposal of the greater part of the assets or
undertaking of Telkom, as contemplated in section 112 of the Companies Act.
The Disposal is not made to a "related party" and accordingly does not constitute a "related party transaction"
in terms of the JSE Listings Requirements.
Circular to Shareholders
The Circular will be sent to Telkom Shareholders, in due course, setting out the information required by the
JSE Listings Requirements in relation to the Disposal (including historical financial information of Swiftnet and
the pro forma financial effects of the Disposal on Telkom) and convening a meeting of Shareholders to
consider, and if deemed fit, pass the ordinary resolution referred to above.
Withdrawal of Cautionary Announcement
With the release of this announcement, Shareholders are advised that, as particulars of the Disposal have now
been announced, caution is no longer required to be exercised by Shareholders when dealing in Telkom
securities.
Management Conference Call
Telkom management will host a conference call on Friday, 22 March 2024 at 11h00 South African time
(UTC+2) to discuss Telkom's disposal of the Masts & Towers business housed in Swiftnet and withdrawal of
cautionary announcement followed by a question-and-answer session.
Conference call dial-in and playback details will be made available on the Telkom Group website,
https://group.telkom.co.za/ir/. Participants are required to pre-register via a link. Once registered, participants
will be provided with the information to join the call, including the dial-in numbers and a passcode. Please
ensure that you dial-in 5 minutes prior to the start time.
Friday, 22 March 2024
JSE Sponsor to Telkom
Nedbank Corporate and Investment Banking, a division of Nedbank Limited
Legal Advisor to Telkom
Bowman Gilfillan Inc.
Financial Advisor to Telkom
FTI Capital Advisors (DIFC) Limited
Legal Advisors to the Purchaser and members of the consortium
Webber Wentzel (for Actis and the Purchaser), Baker McKenzie
Financial Advisors to the Purchaser and members of the consortium
Rothschild & Co (for Actis and the Purchaser), Rand Merchant Bank (a division of FirstRand Bank Limited)
and Itai Capital
Date: 22-03-2024 07:05:00
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