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The acquisition of Telkom’s fixed-line business by MTN, the Johannesburg Stock Exchange-listed mobile telecommunication company, makes strategic sense but could butt against political concerns, according to a source and analysts.
“It would be quite surprising if MTN is allowed to buy Telkom’s fixed-line business,” the source close to the situation told this news service.
It is understood that JPMorgan is acting as broker to Telkom while Merrill Lynch is looking to be appointed as an advisor for MTN.
Though the source acknowledged that a potential acquisition of Telkom’s fixed line business by MTN makes strategic sense and could unlock a number of synergies for MTN, he argued that Telkom, which is 38% owned by the South African government, may be reluctant to pursue such a transaction.
It is a political decision and down to whether the government sees the benefit of creating a strong South African player, the source said.
He said that because Telkom is “massively overstaffed,” potential redundancies of Telkom employees which could stem from a takeover could cause the South African government to take a dim view on the deal.
An alternative but less likely option would be for Telkom to buy a stake in MTN, the source said. If Telkom is kept independent, it could look at expanding its footprint in Africa and make progress in fixed-line through acquisitions, he added.
Last week, Telkom released a cautionary notice to the market which stated that pursuant to its announcement on 13 June that it was reviewing its mobile strategy, the company has entered into negotiations with MTN and Vodafone, the UK-based mobile telecommunications company.
According to the source, the first step in a potential deal between MTN and Telkom will see Telkom dispose of its 50% stake in South African mobile telecommunications carrier Vodacom to Vodafone.
Two Johannesburg-based sector analysts believe that MTN could potentially be interested in acquiring Telkom’s South African fixed-line business. Both analysts agreed that should Telkom be interested in making a play for Telkom’s fixed-line business in South Africa, it would prefer to acquire a majority stake to enjoy operational control over the asset.
However, a possible acquisition of a majority stake could trigger potential competition concerns, the analysts speculated.
Any deal between Telkom and MTN would also need the go-ahead from the government which owns a 38% direct and a further 15% indirect interest through the Public Investment Corporation.
According to the sector analysts, though MTN is probably most attracted to the corporate side of Telkom’s fixed-line business, it would also see value in the retail side of the network.
The second analyst said that MTN could be taking a long-term view of Telkom’s potential to offer data-related services in future such as Internet television and broadband Internet.
A Telkom spokesperson said: “As part of our review of our mobile strategy, Telkom is currently in discussions with .... These talks are still at a preliminary stage and therefore it is not possible to disclose further details.”
An MTN spokesperson noted: “Unfortunately at this stage we are not commenting further on the Telkom matter other than what is in the cautionary published on the JSE.”
Telkom has a ZAR 99.8bn (USD 13.8bn) market cap.
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