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Telecommunications shake-up — MTN in talks to acquire Telkom 

Telecommunications shake-up — MTN in talks to acquire Telkom 
Information brochures sit on display inside a phone store operated by Telkom SA SOC Ltd. at the Menlyn Park shopping center in Pretoria, South Africa, on Tuesday, July 25, 2017. (Photo: Waldo Swiegers/Bloomberg via Getty Images)

MTN is in talks to acquire its smaller rival Telkom, the two companies said on Friday. The news set Telkom’s share price alight, pushing it over 30% higher in late morning trade on the JSE.

The companies said in separate Sens statements that they had entered into talks on the matter. They are aimed at MTN acquiring all of Telkom’s share capital in exchange for shares or a combination of cash and shares in MTN. 

But the companies stressed that talks were “at an early stage and there is no certainty that the transaction will be consummated.” Such a deal would require the approval of both companies’ shareholders and Telkom is still partly state-owned. Privatisation is a polarising political issue in South Africa, so ANC politics is one potential hurdle. 

The acquisition would also have to get the regulatory green light from the Competition Commission, which could throw a spanner in the works. Bloomberg noted that “a number of competition issues would have to be worked through as the deal would create an effective duopoly” with MTN and Vodacom dominating the market. 

So it is early days indeed and nothing is set in stone.  

MTN is South Africa’s second-biggest telecommunications provider and has plenty of cash to pursue acquisitions after disposing of a number of assets over the years. Its balance sheet appears robust: at the end of the 2021 financial year, it had around R39.5-billion on hand in cash and cash equivalents. 

Telkom, the fixed-line operator which branched out into the mobile and IT spaces, grew its earnings very modestly during its latest financial year. Its fixed line and IT segments remain under pressure and so a tie-up with a bigger rival may be an attractive option in the current environment. 

The news set a bonfire under its share price, which soared over 30% by midday on Friday. MTN’s shares were up almost 4%, so the market is clearly excited. The coming months will show if such a reaction is justified. DM/BM

 

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