Telkom: Multi-Links continues to haunt Telkom

ADSL South Africa (Broadband South Africa), 28 November 2011

Telkom executives must regret the day when they decided to enter the telecoms market in Nigeria through the acquisition of 75% of Multi-Links, a Nigerian private telephone operator. Telkom has lost billions of rand as a result of that decision, but despite the fact that Telkom sold Multi-Links to Hip Oils Topco a while ago, Multi-Links is back to haunt them.

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Details remain sketchy at best, but word is out that Telkom is facing a claim of USD481m (or more or less R4bn) made by African Prepaid Services Nigeria (APSN). The claim is actually made against Multi-Links, the former subsidy of Telkom in Nigeria, but due to part of the sales agreement between Hip Oils Topco and Telkom when Multi-Links was recently sold to Hip Oils Topco, Telkom “…must accept liability for “certain litigation claims” against Multi-Links if these claims exceed $10m” (Telkom faces R4bn Multi-Links damages claim, TechCentral, The Editor, 22 November 2011). The claim made by ASPN is relating to damages suffered when Multi-Links walked away from a 10-year deal, effectively resulting in APSN becoming nothing more than a shell or dormant company. The deal which was signed in 2008 by APSN and Multi-Links, involved the exclusive distribution of wireless products to the telecoms market in Nigeria. Multi-Links, in response to the claim made by APSN, has now made a counterclaim of no less than USD123.9m (more than a R1bn) against APSN. It seems however that Telkom is confident that the claim won’t exceed USD10m. In fact, by the looks of it, Telkom is hoping to reach an out of court agreement during arbitration, which is scheduled to start more or less a year from now (from the 5th of November 2012 to the 14th of December 2012). What makes this more intriguing, despite the massive claims involved, is the fact that JSE-listed Blue Label Telecoms has an effective stake of 36.7% in APSN.

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ADSL South Africa (Broadband South Africa) is not going to choose sides, but it will surely be interesting to see how this pans out. We expect that they will reach an out of court agreement with Telkom at the shortest end in terms of payment towards APSN, although APSN is expected to receive only a fraction of its USD481m claim. However, it largely remains an open question of how this is exactly going to pan out, especially in terms of the medium-term impact it is going to have on the share prices of Blue Label Telecoms and Telkom. In the meantime, word is out that Blue Label Telecoms is going to pay Microsoft R390m for Microsoft’s 12% stake in the company.