MTN recently made a buyout offer for Telkom, according to people familiar with the issue, in a deal that would have consolidated SA’s second and third largest telecoms businesses.
Telkom has shown no interest in a sale so far, according to the persons, who asked to remain anonymous because the conversations are private. It is unclear whether the larger competition will continue its pursuit, according to sources.
MTN is rich with cash after a multiyear asset disposal exercise and is trying to expand its position in core African markets. According to the persons, combining with Telkom would help reduce the gap with local rival Vodacom, however, several competition issues would need to be resolved.
A combination “would raise big concerns from competition regulators, and we believe remedies would be large enough to render a deal unappealing,” according to John Davies, a senior analyst at Bloomberg Intelligence.”A merger would establish a near-duopoly in South Africa’s telecoms business, implying that MTN may need to make large disposals or provide wholesale access to its network on a cost-based basis.”
On Monday, Telkom shares rose 6.8% in early trading in Johannesburg before reversing course and trading 4.8 percent lower. This puts the company’s worth at R27.3 billion.
MTN’s stock rose 1.8 percent, bringing its year-to-date gain to more than 182 percent.
Telkom and MTN agreed to a multiyear roaming arrangement last week, under which Telkom would use MTN’s network. There are also some synergies in their corporate strategies, as MTN is working on a sale-and-leaseback arrangement for its SA towers, and Telkom is separating its masts business in preparation for a prospective listing.
The government owns almost 40% of Telkom, which runs the country’s major landline network and also sells mobile phone packages and other services. According to Bloomberg data, Telkom’s other major stakeholder is the Public Investment Corporation, a state-owned pension fund manager that owns 14% of the firm. According to the people, government endorsement is required for a deal to be approved.
MTN has been paying down debt quickly as it sells non-core assets. This includes the sale and leaseback of its SA towers, as well as the phased sale of a stake in recently listed IHS Towers and the withdrawal of some Middle Eastern enterprises.
According to its website, MTN is Africa’s largest mobile phone carrier, with around 272 million subscribers.