Wednesday, November 21, 2007

Telkom's sale: good business?

51% of Telkom Kenya was sold to France Telecom and Alcazar (owned by Agility) for Ksh26bn.
Before that, its 60% stake in Safaricom was exchanged for Ksh69bn debt (made up of Ksh36.3bn to KRA; Ksh10bn to its pension fund and Ksh5.8bn for a syndicated loan and the rest?). My only reservation on the price would be the stake that FT has been given. This now means that all telecom industry is majority owned by foreigners.

However, one must look beyond the price and ask what TK and France Telecom will out of the deal.
TK gets:
  • An experienced acquirer: FT has owns Orange, UK 2nd largest mobile operator and also has businesses in Poland, Holland and North Africa. Its had its share of faux pas though.
  • Capital: With many projects under way in mobile telephony, landlines, internet et al, TK will need a huge infusion of capital to grow
  • Experienced Telecoms company: With advanced logistics and technical know-how. FT is the number one broadband Internet provider in Europe and 2nd in the mobile sector after Vodafone
France Telkom gets:
  1. A perenial loss-making business with stagnant customer numbers
  2. Access to the high-growth Kenyan mobile sector
  3. Gets in just before fibre-optic cable is about to land on our shores
  4. Crucially, the TK has a unified licence (mobile, fixed and internet businesses)
  5. TK's data bandwith that can usefully be applied in flowing TV and internet content to homes.
Is Safaricom OFSD being undervalued? So far, the 25% OFSD is expected to bring Ksh40bn thus valuing Safcom at around Ksh160bn. With Ksh17bn profits i.e. a proxy P/E of under 10 (average NSE P/E is 20+), I think we should be looking to raise Ksh60bn+ from the stake.

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