MTN in discussions to bring Telkom on board – again

Not for the first time, MTN and Telkom have been in talks relating to MTN acquiring the entire issued share capital of Telkom in return for shares, or a combination of cash and shares in MTN. The two companies began negotiations in March 2014, with MTN offering to buy Telkom’s radio access network. But the Competition Commission blocked the deal, citing concerns over decreased competition, even though MTN would not be acquiring Telkom’s mobile retail business. But don’t get too excited – discussions are at an early stage. Article was first published on MyBroadband. – Sandra Laurence

MTN in discussions to buy Telkom

By Jan Vermeulen

MTN and Telkom have advised shareholders that the two companies have entered into discussions relating to MTN acquiring the entire issued share capital of Telkom in return for shares, or a combination of cash and shares in MTN.

“Discussions are at an early stage and there is no certainty that the transaction will be consummated,” the companies said.

“If concluded, the transaction may have a material effect on the price of the company’s securities. Accordingly, shareholders are advised to exercise caution when dealing in the company’s securities until a further announcement is made.”

This is not the first time MTN and Telkom have been in talks.

The two companies began negotiations in March 2014, with MTN offering to buy Telkom’s radio access network.

However, the Competition Commission blocked the deal citing concerns over decreased competition, even though MTN would not be acquiring Telkom’s mobile retail business.

Among the concerns was the substantial amount of spectrum MTN would gain if it bought Telkom’s mobile network assets.

The Commission said access to additional spectrum by MTN would confer first mover advantages regarding network speed, capacity, and mobile offerings.

Since then, the Independent Communications Authority of South Africa has auctioned off sought-after radio frequency spectrum, with Vodacom and MTN acquiring the lion’s share.

However, the Competition Commission also warned in 2015 that a merger between MTN and Telkom would likely entrench a duopolistic market structure dominated by Vodacom and MTN.

“Such a resultant duopoly market structure is unlikely to serve customers well, particularly when considering that it is the smaller mobile operators that lower prices before the larger operators, MTN and Vodacom,” the Commission said.

“The merger is also likely to have a significant impact on the structure of the South African mobile markets and future competitive dynamics.”

At the time, the Commission invited MTN and Telkom to suggest remedies to address the likely competition and public interest harm arising from the transaction.

The two companies ultimately dropped the deal.

Towards the end of last year, Bloomberg reported that MTN approached Telkom with another takeover offer, but Telkom had not yet shown interest at the time.

Responding to the report, former Telkom CEO Sipho Maseko said he was not considering such a deal.

However, Maseko said such a deal could receive regulatory approvals if the remedies package were structured correctly.

“Consolidation is inevitable at some point in the market — probably in the next two years or so,” Maseko said.

He acknowledged that a deal with MTN could raise concerns about spectrum concentration or limiting competition.

“You must have a bit of imagination to make sure you bring the right proposition to the regulators,” said Maseko.

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