MTN Makes Takeover Approach for South Africa’s Telkom

(Bloomberg) -- MTN Group Ltd. recently made a takeover approach for Telkom SA SOC in a deal that would have combined South Africa’s second and third largest telecommunications operators, according to people familiar with the matter.

Telkom has so far shown no interest in a sale, said the people, who asked to remain private as the talks are confidential. It remains unclear whether the larger rival will continue its pursuit, the people said.

“There is no deal on the table in relation to this matter,” MTN said in a statement responding to Bloomberg inquiries, declining further comment. A representative for Telkom didn’t immediately comment.

Following a multi-year asset-disposal program, MTN is flush with cash and looking to strengthen its hand in core African markets. A combination with Telkom would help close the gap with crosstown rival Vodacom Group Ltd., South Africa’s market leader, though a number of competition issues would have to be worked through, said the people.

A tieup “would draw significant concerns from competition authorities, and we believe remedies could potentially be big enough to render a deal unattractive,” John Davies, a senior analyst at Bloomberg Intelligence, said in a note. “A merger would create a near-duopoly in South Africa’s telecoms industry, suggesting MTN may need significant disposals or allow cost-based wholesale access to its network.”

Share Reactions  

Telkom shares jumped 6.8% in early trade in Johannesburg on Monday, before reversing course and trading 4.8% lower as of 2 p.m. local time. That values the Pretoria-based company at 27.3 billion rand ($1.6 billion). 

MTN’s shares gained 1.8%, extending a surge for the year to more than 182%.   

Last week, the two parties agreed to a multi-year roaming agreement, where Telkom uses MTN’s network. There are also certain alignments in their corporate strategy as MTN is busy with a sale-and-leaseback deal of its South African towers, while Telkom is separating its masts business to prepare for a possible listing of the unit.  

With over 40% owned by the state, Telkom controls South Africa’s largest landline network and also sells mobile-phone packages and other services. Telkom’s other large shareholder is state-owned pension fund manager the Public Investment Corporation, which holds 14% of the company, according to Bloomberg data. For a deal to ever get the go-ahead, there would have to be government support, said the people. 

Johannesburg-based MTN has been paying debt at a rapid rate as it disposes of non-core assets. That includes the phased sell-down of a stake it holds in recently listed IHS Towers, the sale-and-leaseback of its South African towers and exiting certain Middle Eastern operations. 

MTN is Africa’s biggest mobile phone company with about 272 million subscribers, according to its website.

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