Telkom shares tank on KT Corp deal block

Shares in Telkom dropped more than 5% by the early afternoon on Friday as investors reacted negatively to the news that the telecom firm’s deal with KT Corp has been blocked by government.

By 13:00, shares in Telkom slumped 5.06% or R1.16 to R21.75 on the JSE, representing its lowest level since 2004.

Telkom advised shareholders on Friday (1 June) that the potential strategic venture with Korea Telecom Corporation will not go ahead.

“Telkom has been informed by the Honourable Minister of Communications that the proposed transaction between the companies had been presented to cabinet on 30 May 2012 and that cabinet had taken the decision not to support the transaction as proposed,” the group said in a statement on Friday.

The market is showing its disappointment over government’s decision to block the deal between Telkom and KT Corp,” said an analyst at PSG Konsult. “Any bulls in the market for Telkom would have been burnt by this news today,” he said.

“Everybody knows that the fixed line business is dead, and with the ongoing mobile war between Cell C and Vodacom, this makes Telkom’s jump into the mobile space extremely difficult. It’s a case of headwinds all the way,” the analyst said.

A dealer at Thebe Stockbrokers added that Telkom had yesterday fallen off the MSCI South Africa Index, a free-float weighted equity index.

Traders were split regarding telkom’s value amid the disappointment of cabinet’s decision.

“I do see value at its current price,” noted one dealer, however, another added that Telkom could be in for a further sell-off.

Telkom advised shareholders that the company will be engaging with the Minister of Communications to discuss cabinet’s decision and the implications thereof.

“This engagement will seek to obtain clarity on the context of the decision given that Korea Telecom, and the transaction, were introduced to Telkom by Government,” it said.

Earlier this month, Telkom announced that it had reached an agreement regarding the terms of a potential strategic venture with KT Corporation, however, at a revised cash issue price due to a decline in its share price.

KT had been set for a strategic equity shareholding of 20% in the post-issue ordinary share capital of Telkom by way of a specific issue of shares for cash.

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Telkom shares tank on KT Corp deal block