Telkom SA, which is majorly owned by the South African state and which has been struggling with an increasingly costly debt burden, is considering the acquisition of Cell C; the third-biggest mobile carrier in South Africa which is struggling with debts of its own.
Earlier this week, the state-owned telco said it was locked in talks with Cell C over a potential acquisition, though the target remains undisclosed.
Telkom SA shares have been on the up since the announcement while those of Blue Label Telecoms — the majority owner of Cell C — have plummeted since then.
It won’t be the first time that Telkom is mulling the acquisition of its rival. The telco said in a statement released on Friday that it would go ahead with the deal provided Cell C does some chopping and changing within its ranks.
“The potential acquisition will be subject to Cell C completing a financial restructuring to ensure that its gearing levels are reduced to a sustainable level as specified by Telkom,” it said.
Also, Telkom is demanding that Cell C renegotiates a number of contractual relationships to terms it finds acceptable. Additionally, the state-owned telco maintains that while due diligence was largely concluded, discussions were preliminary and any takeover would be subject to regulatory approvals.
Cell C has since confirmed the interest of Telkom, affirming in a statement that it had received a “non-binding offer” from Telkom. The telco, however, remains focused on its immediate business — which includes improving liquidity, fixing its balance sheet, and driving efficiencies.
Cell C has been wallowing in debt for years as it tries to keep up with steep competition from bigger players, Vodacom and MTN. The telco has revealed that constructive discussions on its recapitalisation are ongoing with lenders and other stakeholders.
Things haven’t been particularly rosy for Telkom either. On Tuesday, the Telkom revealed that its half-year profits dipped by more than a third after a rise in its debt costs. This spike was incurred in an attempt to revamp its technology.