South Africa: MTN in talks to buy Telkom

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  • South African mobile giant MTN (MTNJ.J) is in talks to buy smaller rival Telkom (TKGJ.J) in a deal that would leapfrog market leader Vodacom Group
  • Shares of Telkom were trading higher by 33.3 per cent at 44.6 rands as of 12:58 GMT, putting them on track for their best single-day gain on record
  • MTN would gain access to Telkom’s fibre infrastructure due to the proposed purchase worth more than one billion dollars

South African mobile giant MTN is in talks to buy smaller rival Telkom in a deal that would leapfrog market leader Vodacom Group.

The transaction is being discussed as an all-stock or cash-and-shares transaction (VODJ.J).

MTN has been considering Telkom’s acquisition for a considerable time. Since the South African Competition Commission vetoed an attempt by MTN to buy Telkom’s radio access network in 2014 due to the impact that it would have on limiting market competition, rumours of a merger have been rampant ever since.

Most recently, in November 2021, rumours were circulating indicating that Telkom had turned down a buyout bid, with sources saying this was the case.

Since then, however, there has been a shift at the top of Telkom. Former MTN executive Serame Taukobong has taken over as chief executive, replacing the departing Sipho Maseko.

This may be why Telkom appears eager to engage in overt discussions with MTN.

MTN would gain access to Telkom’s fibre infrastructure due to the proposed purchase worth more than one billion dollars. This is considered essential for extending 5G and 4G mobile services.

However, some analysts questioned whether or not South Africa’s competition commission would give its blessing to a merger that would successfully create a telecoms duopoly in Africa’s most developed country.

In separate statements released on Friday, the two corporations both stated that “discussions are at an early stage” and that there is “no inevitability that the deal will be concluded.”

Shares of Telkom were trading higher by 33.3 per cent at 44.6 rands as of 12:58 GMT, putting them on track for their best single-day gain on record. MTN experienced a growth of 7.4 per cent.

The proposed transaction does make perfect sense from every angle. We have seen this trend in a significant number of different jurisdictions, in which mobile providers are merging their businesses with those of fixed-line players.

According to Peter Takaendesa, who is in charge of equity investments at Mergence Investment Managers, the primary justification for this is that, as you progress toward 4G and 5G, you will require additional fibre to connect your mobile network.

In March, South Africa successfully completed an auction for radio frequency spectrum, which was required for the rollout of 5G.

South Africa: MTN is in talks to buy out Telkom a smaller player in the country. [Photo/ ITweb]
If the acquisition goes through, MTN will have access to Telkom’s Openserve fibre business, which brought in 13.4 billion rands in revenue for the year that ended on March 31 and links about 2.5 million locations.

Vodacom recently agreed to purchase a co-controlling stake in the fibre assets held by Community Investment Ventures Holdings, increasing the competitive pressure on MTN.

MTN has declared that it will withdraw its operations from the Middle East by the end of 2020 to concentrate on the rapidly expanding African market.

According to AJ Snyman, an investment analyst at Peregrine Capital, the chances of the Competition Commission of South Africa approving the merger in its current shape are “nil.” This is the opinion that Snyman held.

“If the merger goes through, MTN and Telkom will have at least a 50 per cent market share in the mobile area, which is certainly a dominant market position,” Snyman said.

MTN would also gain access to Telkom’s valuable 3.2 gigahertz spectrum, which is suitable for 5G and would give it a dominating spectrum holding, he added. This would be advantageous for MTN.

A representative for the Competition Commission stated that the organisation was aware of the events but refused to comment because it had not been informed of the possible transaction.

Compared to other developed telecom countries, South Africa’s data prices are already relatively high; thus, some investors felt that the merger would reduce the market’s competition and ultimately result in higher prices.

MTN Company Information

MTN Group Limited is a mobile telephone service provider. The company provides business and digital services to consumers. South Africa, Nigeria, South and Ghana and East Africa, Central and West Africa, North Africa and the Middle East are the company’s segments. Voice, data, and digital services are provided to retail customers. It also provides enterprise solutions to business and government clients in 23 countries.

As a dedicated partner to small and medium-sized businesses, large corporations, and the public sector, it offers its services to businesses to foster agility and growth via connectivity, communication, and teamwork solutions over data and ICT infrastructure and investing in mobile platforms, apps, and online enterprises, its mobile financial service business enables individuals to conduct financial transactions via their mobile devices and provides them with entertainment and online shopping.

Telkom (TKGJ.J)

Telkom offers comprehensive telecommunications services. Among the services provided by the company are integrated voice, internet, broadband, cloud services equipment and IT, and devices, mobile, convergence, and data centre solutions. Its fixed-line services comprise fixed-line subscription, connection, internet and data, traffic and interconnection. Data services, mobile voice services, and device sales are examples of mobile services. Interconnection services provided by Telkom include transiting traffic and terminating from South African mobile operators and international operators.

Read: Preserve satellite broadband access in South Africa!

Maingi Gichuku is passionate about helping African businesses grow by offering technology solutions. With a BSC in Zoology and biochemistry, Gichuku yearns for an Africa that can find solutions to its challenges. My drive is to see an economically dynamic Africa and embrace its populations by creating opportunities cutting across the social and economic strata.

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