How we were ‘misled’ into investing in Multi-links Nigeria – Telkom
Telkom alleges Thami Msimango breached his fiduciary responsibilities while at the helm of the global operations.
Telkom would have pulled out of its loss-making Nigerian operation three years earlier, had it not been misled into signing a 10-year deal that it thought would bolster revenue, the telco argues in court papers.
Telkom and its former subsidiary, Multi-Links, are suing three entities and three people for around R7 billion in damages, arguing breaches of fiduciary duty by a former executive and misrepresentations by Blue Label. It alleges the misrepresentations were designed to cause Telkom to continue pumping money into the bleeding Nigerian company after December 2008.
The suit, filed on 17 May in the North Gauteng High Court, cites six defendants, including Blue Label Telecoms, Africa Prepaid Services (APS), Africa Prepaid Services Nigeria (APSN), Blue Label COO Mark Pamensky, ICT veteran Mthunzi Mdwaba, and former executive Thami Msimango.
Telkom says it has suffered damages of $528 million in the form of loans to Multi-Links that are irrecoverable and were made between December 2008 - when it would have pulled out were it not for the deal - and October 2010. Multi-Links, the second plaintiff, has suffered damages of $196 million because it paid Blue Label's Nigerian subsidiary under a deal the papers argue yielded no value.
In March 2007, Telkom bought 75% of the CDMA operator, for $280 million, and almost two years later, bought out the balance for another $130 million. The company says in its filing that Multi-Links performed poorly between when it initially invested and November 2008, to the point where its performance was below the business plan.
Telkom sold the unit in October 2011, making a large loss, after having written the unit down for more than its initial investments. Under the deal, Multi-Links outsourced its entire sales, marketing and distribution function to APSN. The deal was seen as vital to fixing the flagging Multi-Links operation, which was a precondition of Telkom investing more into it.
No business sense
In court papers, obtained by ITWeb, Telkom argues the 10-year super dealer agreement with Blue Label was inked as it was seen as essential for Multi-Links' continued survival. Were it not for the agreement, Telkom would have sold out of the operation by no later than December 2008.
However, Telkom argues Blue Label, directly or indirectly, gave Mdwaba a 49% stake and $2 million in commission to him to influence Msimango, who was then chief of its global operations, and other unknown Telkom staff members, into inking the deal, which was to its disadvantage.
Blue Label, which has also instituted arbitration against Multi-Links after its 10-year deal was cancelled early, is confident the claims made against it, its subsidiaries and representatives will be successfully defended. 'As the arbitration and legal proceedings are sub judice, no further statements may be made about the merits at this stage.'
Telkom also wants arbitration between it and Blue Label added to the lawsuit, arguing the issues overlap. Post-cancellation, Blue Label has - according to Telkom's papers - valued APSN's lost profits at $469 million.
Msimango tells ITWeb he has received the summons and will consult with his lawyers today, and can only respond after the meeting. However, he argues that someone is looking for a 'scapegoat' for the board's mistakes. 'I refuse to be one… I'm not going to take it lying down.'
Mdwaba, speaking to ITWeb from Geneva where he has been for three weeks attending meetings at the International Labour Organisation, says the matter is sub judice and he cannot comment.
Telkom argues that several facts were not disclosed to it, including that Mdwaba, via an entity called Citadella, was to hold 49% of APSN, which is a Blue Label subsidiary through its 72% stake in APS, which owns 51% of the Nigerian company.
APSN was initially meant to be majority-owned by Blue Label and would act as the Nigerian 'alter ego' of APS, says Telkom. 'As a consequence of Citadella's intended (and in due course actual) shareholding in APSN, Blue Label would only hold an effective 36.72% share.'
Telkom also says that, despite no intermediary being involved in the deal during negotiations, before it was signed, Pamensky and Mdwaba agreed that Citadella would facilitate the agreement on terms that favoured Blue Label and would, in return, receive the 49% stake and a $2 million commission.
Telkom alleges Mdwaba 'unfairly took advantage' of his personal influence over senior Telkom and/or Multi-Links staff whose identities, apart from Msimango, are not known to it. This led to the deal being skewed to favour Blue Label and disadvantage Telkom, it says.
In addition, Blue Label had a duty to act with care towards Telkom and Multi-Links, which it breached when it did not disclose Mdwaba's involvement in ASPN and other material issues, argues Telkom. If the information has been known, the deal, which did not provide value, would not have been signed, it argues.
Misimango breached his duties to Telkom by not acting in the company's best interests, it says. If this had not happened, it would have pulled out at the end of 2008, it adds.
'The Telkom side was involuntarily reliant upon the Blue Label side for the frank disclosure of any material facts exclusively known to Blue Label or APS which could undermine the relationship of trust and confidence between Blue Label and its subsidiaries on one hand and Telkom and MLT [Multi-Links] on the other.'