Vodafone £5 billion South African talks collapse

Vodafone’s bid to chase growth in emerging markets was dealt a severe blow today when a planned £5 billion deal to boost its stake in a South African mobile operator collapsed.

The mobile phone giant had been in negotiations for several months about extending its 50 per cent stake in Vodacom, the mobile phone company it co-owns with Telkom, South Africa’s dominant telecoms operator.

Telkom called off the talks today.

Vodafone has long coveted control of Vodacom which has operations in South Africa, Mozambique, Lesotho and Tanzania although chief executive Arun Sarin recently indicated the group would be satisfied with less than a full grip on the venture.

Telkom’s 50 per cent stake in Vodacom, South Africa’s biggest mobile operator, had been valued by analysts at about 75 billion rand (£5.2 billion).

Telkom blamed the collapse of negotiations on its failure to reach agreement with a third party, MTN, another South African mobile operator.

As part of its deal with Vodafone Telkom had planned to sell all or some of its fixed-line assets to MTN.

The announcement sent Telkom’s shares down more than 10 per cent while Vodafone’s shares were trading up 1.2p at 182p this morning.

In a statement Telkom said: “As discussions with Vodafone regarding Telkom’s investment in Vodacom were subject to agreement being reached with MTN, Telkom shareholders are advised that discussions with both MTN and Vodafone have been terminated.”

Vodafone said that it remained keen to do a deal. “As we have said, consistent with our strategy, we remain interested in increasing our ownership in Vodacom at values that meet our mergers and acquisition criteria.”

People involved in the Vodafone deal said that a “period of quiet reflection” would follow.

They are understood to blame efforts by MTN to force down its price for Telkom’s fixed-line assets for the collapse of the talks.

As growth in its core Western Europan markets has slowed Vodafone has increasingly sought growth in fast-growing emerging markets where many users are leapfrogging fixed-line services to take up mobile phones.

The deal would have had huge political ramifications. A move by Telkom to sell its fixed-line as well as its mobile assets would reshape the country’s telecoms industry. It would spell the end of Telkom and create a new national champion in the form of the enlarged mobile/fixed-line giant MTN.

It was also facing hurdles in the form of political opposition and opposition from unions, which feared widespread job losses at Telkom.

Vodacom’s interim results for the six months ended 30 September, showed that total customers increased by 22.6 per cent to 31.6 million of which 23.3 million are in South African.

Profit, after tax increased by 17.5 per cent to Rand 3.7 billion (£257 million) on revenues up 17.2 per cent to 22.8 billion rand (£1.58 billion).

Elizabeth Judge (Timesonline)