Telkom -- announcement on Vodacom

Thu, 06 Nov 2008

Telkom shareholders are referred to the cautionary announcements, the last of which was published on 9 October 2008, regarding the receipt by Telkom of a non- binding proposal from Vodafone. Telkom shareholders are advised that Telkom, Vodafone, various subsidiaries of Vodafone and Vodacom have signed binding transaction agreements (the "transaction agreements"), pursuant to which: *Vodafone will acquire from Telkom an additional 15% of the entire issued share capital of Vodacom for a cash consideration of ZAR22.5 billion less the attributable net debt of Vodacom as at 30 September 2008 ("the sale transaction"); *Telkom will distribute 50% of the after tax proceeds from the sale transaction to Telkom shareholders by way of a special dividend, net of any tax levied thereon ("the distribution"); *Vodacom will be converted to a public company and application will be made for Vodacom to be listed on the main board of the JSE ("the listing"); and *Telkom will distribute the balance of the shares in Vodacom held by Telkom (constituting 35% of the entire issued share capital of Vodacom) to Telkom shareholders in South Africa and other eligible jurisdictions, in proportion to their shareholdings in Telkom, by way of an unbundling in terms of section 90 of the Companies Act 61 of 1973, as amended ("Companies Act") and section 46 of the Income Tax Act 58 of 1962 as amended ("the unbundling transaction"). Further details of the sale transaction, the distribution, the listing and the unbundling transaction (collectively, "the proposed transaction") are set out below. The sale transaction The sale transaction will be implemented prior to the listing and the unbundling transaction. Subject to the fulfilment of the conditions precedent set out in below, Telkom will dispose of 15% of the entire issued share capital of Vodacom to a wholly-owned subsidiary of Vodafone, Vodafone Holdings (SA) (Pty) Ltd ("VHSA"). The purchase price of ZAR22.5 billion for the 15% stake in Vodacom has been determined on a cash-free, debt-free basis. The consideration payable to Telkom by VHSA will therefore be ZAR20.95 billion, being ZAR22.5 billion less the attributable net debt of ZAR1.55 billion ("the net purchase price"). The net debt of ZAR 1.55 billion includes an amount of ZAR 450 million which relates to dividends received by Telkom post 30 September 2008. The net purchase Price is payable in cash, 10 business days after the fulfilment or, where applicable, waiver of the conditions precedent. The net purchase price will be further adjusted by deducting 15% of any dividends (and any secondary tax levied thereon), declared or paid by Vodacom during the period between signing and implementation of the Proposed Transaction. The distribution In considering the application of the proceeds arising from the sale transaction, the directors of Telkom shall, in accordance with their fiduciary duties, act in the best interests of all Telkom shareholders. On this basis, the directors have recommended that 50% of the net purchase price (as adjusted) be retained by Telkom and the balance returned to Telkom shareholders by way of a special dividend (net of any applicable taxes). This is a condition of the Proposed Transaction and Telkom shareholders will be required to pass the resolution declaring this special dividend in a general meeting. The proceeds retained by Telkom will be invested in projects aligned with its growth strategy as set out above or acquisitions which meet Telkom's rigorous investment criteria and which are projected to generate returns well in excess of Telkom's cost of capital. Further detail in this regard will be provided to Telkom shareholders in the circular referred to paragraph below. The listing The listing will take place prior to the unbundling transaction. The listing of Vodacom on the JSE will be one of the largest listings in recent years and Vodacom is expected to rank amongst the top 20 companies by market capitalisation on the JSE. The unbundling transaction In terms of the unbundling transaction, Telkom will distribute its remaining shares in Vodacom (i.e. constituting 35% of the entire issued share capital of Vodacom) ("the Unbundling Shares") to Telkom shareholders in proportion to their shareholding in Telkom. A mechanism shall be put in place so that shareholders in certain jurisdictions outside of South Africa may receive cash instead of the Unbundling Shares if such receipt would require registration or approval under relevant local securities laws. Following the implementation of the Proposed Transaction, it is anticipated that Vodafone will hold 65% of the ordinary shares in Vodacom. Conditions precedent The sale transaction, the distribution, the listing and the unbundling transaction are inter-conditional so that none of them will be implemented unless the others become unconditional. Once all the conditions have been met, the Proposed Transaction will be implemented in the following sequence: *first, the Sale Transaction; *second, the Listing; *third, the Unbundling Transaction; and *fourth, the Distribution. The sale transaction is conditional upon Telkom shareholder approval in terms of JSE Listings Requirements. The sale transaction is further subject to, inter alia, the fulfilment, or where applicable, waiver, of all regulatory and statutory approvals and consents as may be necessary, including, inter alia: *the South African Competition Authorities; *the Tanzanian Competition Authorities; and *the Independent Communications Authority of South Africa. The listing is subject to approval by the JSE. The declaration of the Distribution is subject to the approval by a majority of Telkom shareholders in general meeting. The unbundling transaction is subject to, inter alia, the fulfilment, or where applicable, waiver, of the following conditions precedent: *approval of the Unbundling Transaction by 75% of Telkom shareholders in general meeting in accordance with section 228 of the Companies Act; and *approval by the JSE of the Listing. The conditions precedent referred to above must be fulfilled within 12 months of the signature date of the Transaction Agreements, or such other later date as may be agreed by the parties. Directors' support The directors of Telkom have considered the terms and conditions of the proposed transaction and are of the opinion that the proposed transaction will ultimately enhance shareholder value for Telkom shareholders. Accordingly, the directors of Telkom are in favour of the Proposed Transaction and intend to vote, in respect of any Telkom shares held by them at the date of the general meeting, in favour of the resolutions necessary to approve and implement the Proposed Transaction. The directors recommend that Telkom shareholders also vote in favour of such resolutions. Shareholder support Telkom shareholders are referred to the cautionary announcement on 9 October 2008 which indicated that the South African Government is supportive of the Proposed Transaction, subject to finalising the Transaction Agreements. Telkom shareholders are advised that the South African Government and the Public Investment Corporation Limited (PIC), which, as of 30 September 2008, directly or indirectly owned 39.8% and 18.1% of Telkom's issued share capital, respectively, have now provided irrevocable undertakings to vote in favour of the Proposed Transaction. Posting of circular A circular providing further information on the proposed transaction and containing a notice of general meeting is expected to be posted to Telkom shareholders in the first quarter of 2009. Withdrawal of circular Telkom shareholders are advised that the cautionary announcements referred to in the first paragraph of this announcement are hereby withdrawn and caution is no longer required to be exercised by Telkom shareholders when dealing in Telkom's securities.