MTN Throws In The Towel On Its Telkom Acquisition Gambit In South Africa

In mid-July, South Africa’s second-biggest telco, MTN announced its intentions to acquire its rival, Telkom, in a deal that would see it overtake Vodacom as the country’s largest telecoms player. At the time, there were high hopes that the industry was closer to a consolidation point. 

Roughly 3 months later, MTN South Africa has walked away from negotiating the takeover. In an official statement, the company blamed its halt on both parties’ inability to reach a mutually satisfactory agreement. Due to the hiccups, shareholders were advised that “discussions regarding the proposed transaction are terminated”.

On its part, Telkom, the third-largest operator in the market, stated that the proposal was withdrawn [on October 18th] because the company  “was not in a position to provide MTN with assurances around exclusivity”.

“Discussions were at an early stage and had not progressed to due diligence nor had a binding offer been received by the Telkom board of directors. The Telkom board has a legal and fiduciary duty to consider all bonafide offers. Shareholders are, therefore, advised that they no longer need to exercise caution when dealing in the company’s securities,” Telkom explained. 

When MTN indicated an interest in Telkom, the potential marriage seemed to have been bothersome for Rain, the fourth-largest [but mobile data-only] carrier on the turf—perhaps because it would have left the company at the bottom of South Africa’s telecom food chain. 

In a twist of events after MTN’s proposal, Rain developed similar interests in Telkom. Within a month of the development, the company, looking to tie up in defense against [even] more domination from the heavyweights, offered to merge with Telkom.

“It is a logical alternative to simply selling to MTN and would also be consistent with the pro-competitive policies of the government. The merger would bring together the considerable infrastructure and mobile businesses of Telkom and the successful, new-age 4G and 5G businesses of Rain,” a related statement read.

Revealing these plans, the data-only player argued that joining forces with Telkom was more sensible regulatorily and business-wise, chiefly because it would encourage healthier market competition. But, due to “regulatory” complications, South Africa’s Takeover Regulation Panel (TRP) ordered Rain to withdraw its statement, which flouted the national Companies Act. 

After withdrawing the announcement, Telkom refused to back down. In September, the company released its official offer, a non-binding merger proposal presented to Telkom’s board. Receiving the proposal, Telkom confirmed that consideration is guaranteed. Indirectly, it led to slowed-down discussions with MTN. 

From the looks of it, MTN backed out for the sake of not being able to broker the deal alone, without a competitor in the background shooting for the same set of stars. Recall, discussions were yet at an early stage. However, there are reports that Rain and Telkom’s negotiations progress as usual.

The South African telecoms market is reasonably duopolized between Vodacom and MTN. Indeed, there is a need to create a formidable third force to compete with the champions. Provided Telkom and Rain see each other through a merger, that “third force” will [soon] be born.