JOHANNESBURG, July 15 (Reuters) – South African mobile group MTN MTNJ.J is in talks to buy smaller rival Telkom TKGJ.J in a stock or cash-and-shares deal that would leapfrog market leader Vodacom Group VODJ.J.
The potential $1 billion-plus deal would give MTN access to Telkom’s fibre assets, seen as a must for expanding 4G and 5G mobile services.
But some analysts questioned if South Africa’s competition regulator would approve a tie-up that would effectively create a telecoms duopoly in Africa’s most advanced economy.
“Discussions are at an early stage and there is no certainty that the transaction will be consummated,” the companies said in separate statements on Friday.
Telkom’s shares were up 33.3% at 44.6 rand by 1258 GMT, on track for their biggest daily jump on record. MTN was up 7.4%.
“It (the proposed deal) does make sense in every way. We’re seeing this happening in many other jurisdictions, where the mobile operators are consolidating with fixed line players,” Peter Takaendesa, head of equities at Mergence Investment Managers said.
“The key reason for that really is, as you move towards 4G and 5G, you need more fibre to connect your mobile network.”
If successful, the deal would give MTN access to Telkom’s Openserve fibre business, which made 13.4 billion rand ($782 million) in revenues for the year ended March 31 and connects around 2.5 million premises.
Vodacom recently agreed to buy a co-controlling interest in the fibre assets of Community Investment Ventures Holdings, putting pressure on MTN to respond. Read full story
MTN announced its exit from the Middle East in 2020 to focus on the high growth African market.
AJ Snyman, an investment analyst at Peregrine Capital, said he thought there was “zero” chance South Africa’s Competition Commission would approve the deal in its current form.
“If the deal goes through, then in the mobile space, MTN together with Telkom will be at least over 50% market share and that’s clearly, obviously a dominant market position,” Snyman said.
MTN would also have access to Telkom’s prized 3.2 gigahertz spectrum, ideal for 5G, giving it a dominant spectrum holding, he added.
A Competition Commission spokesperson said it noted the developments but wouldn’t comment as it had not received a notification of the potential deal.
Some investors said the tie-up would lower competition and lead to higher prices at a time when South Africa’s data prices are already high compared with other developed telecom markets.
($1 = 17.1899 rand)
(Reporting by Nqobile Dludla in Johannesburg, Eva Mathews and Bhargav Acharya in BengaluruEditing by Promit Mukherjee and Mark Potter)
