Bharti Unit, Telkom Kenya Agree to Combine to Rival Safaricom

(Bloomberg) -- Bharti Airtel Ltd.’s Kenyan unit agreed to combine operations with Telkom Kenya Ltd., creating the second-largest telecommunications operator in the East African nation after Safaricom Plc.

Telkom, which is 60 percent owned by Helios Investment Partners LLP and the rest by the Kenyan government, will have an option of taking as much as 49 percent of the new company, it said in an emailed statement on Friday. The companies will merge mobile, enterprise and carrier services into the new entity to operate as Airtel-Telkom, according to the statement. Telkom’s real estate portfolio and government services are not part of the deal.

The company will take on industry leader, Safaricom which is partly owned by Johannesburg-based Vodacom Group Ltd. and had 29.9 million users by end of September, according to the Communications Authority. That translated to a market share of 64.2 percent, compared with Airtel’s 22.3 percent.

Safaricom, East Africa’s biggest company by valuation, is dominant in the lucrative mobile-money transaction business, which rose almost 19 percent to 1.59 trillion shillings ($15.8 billion) in 2018, accounting for 78 percent of such transactions, according to the regulator.

The merged company will be chaired by Telkom Chief Executive Officer Mugo Kibati, while his Airtel counterpart, Prasanta Sarma, will be its executive-head, according to the statement.

The deal’s closure is subject to regulatory approval.

Comments

• “Airtel and Telkom Kenya’s plan to merge is a sensible option, given Safaricom’s ongoing success, but could be difficult to get past regulators, as it would effectively create a duopoly,” said John Davies, a Bloomberg Intelligence analyst. “We think sectoral regulation should give better consumer outcomes, though ultimately it’s a political decision.”
• “It’s positive for the two to merge because this becomes a stronger competitor for Safaricom,” Tracy Kivunyu, an analyst at Exotix Capital Ltd., said by phone from the Kenyan capital, Nairobi. “It becomes a two-player market, which is a good thing since Airtel was able to get market share, unlike Telkom, since they have a similar customer profile.”
• “We look forward to this merger leading to the introduction of new technologies and telecommunication products,” ICT Secretary Joseph Mucheru said in the emailed statement.

Click here for story on Telkom’s investment in region’s biggest submarine fiber-optic cable

Market Reaction

• Safaricom shares fell as much as 2 percent in Friday’s trade, the most in a month and halting a 10-day rising streak.

To contact the reporter on this story: Bella Genga in Nairobi at bgenga2@bloomberg.net

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Helen Nyambura, David Malingha

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