For MTN to get the Competition Commission’s approval to acquire Telkom, it must structure the deal extremely carefully.
“This was a very predictable reaction to the Vodacom-CIVH deal,” Ellipsis Regulatory Solutions founder Dominic Cull told MyBroadband.
“MTN needs to keep up with the Jones’s, but the deal will likely be less than a total acquisition,” said Cull.
“It will need some kind of structure to address the obvious competition law concerns.”
MTN and Telkom announced Friday that the two companies were in early discussions regarding a potential acquisition.
They said MTN aims to acquire Telkom’s entire issued share capital in exchange for shares or a combination of cash and shares in MTN.
The Vodacom-CIVH deal Cull referred to is a transaction where Vodacom plans to acquire a co-controlling share of the Vumatel and Dark Fibre Africa (DFA) networks for around R13.2 billion.
Remgro-owned Community Investment Ventures Holdings (CIVH) owns Vumatel and DFA.
The deal comprises R6 billion cash, a R3 billion top-up payment based on assumptions at the time of the transaction, and fibre assets worth R4.2 billion.
Vodacom and CIVH will pool their fibre assets in a new holding company, which has yet to be named.
The companies have assured Vumatel’s fibre network will remain open access. Vodacom’s entire fibre network will also immediately become open access.
The purchase price is for a 30% stake in CIVH and gave the company an implied valuation of R44 billion on 31 December 2021.
Telkom’s market capitalisation at market close on Monday, 18 July, was R20.64 billion.
That includes its mobile network, a fibre-to-the-home network that’s neck-and-neck with Vumatel, its unrivalled national fibre infrastructure spanning over 160,000km, a property portfolio (Gyro), and BCX.
Compared to CIVH, Telkom is a steal — and understandably attractive for a company like MTN.
The big question is how MTN will get the Competition Commission to approve the deal.
In 2015, the competition watchdog blocked a deal for only Telkom’s cellular infrastructure, citing concerns over decreased competition.
However, there is a significant difference this time — MTN would consider buying Telkom without its mobile network division.
According to Cull, MTN will look at how Vodacom has structured its deal to acquire CIVH.
He said any deal that includes radio frequency spectrum would be tricky.
A combined MTN-Telkom Mobile would hold more spectrum than any other operator in South Africa and give them a distinct advantage.
There is a high chance of the deal not getting across the line if it isn’t split up, similar to the Vodacom-CIVH deal.
There are several ways MTN could structure the deal to give it a chance of success, including spinning out Telkom’s mobile operator and retail Internet service provider business.
Telkom has also been mulling a separate listing for its cellular towers business, Swiftnet.
Barnard Inc. mergers and acquisitions specialist Chanique Rautenbach agreed with Cull that MTN and Telkom must carefully structure such a deal.
“We have seen a change in the Competition Commissions investigations of late,” Rautenbach told MyBroadband.
“The investigations have become more detailed, focusing on the shareholding and business interests of both the target company and the acquirer to determine the actual market share controlled should a merger or acquisition go through,” she said.
“Whilst MTN may have plans to ensure competition within their market, the macro-economic impact of the merger or acquisition will be looked at.”
Rautenbach said this would be to ensure that in all aspects, the proposed merger or acquisition creates value and a competitive market to the consumer’s benefit.
“As an outsider looking in, it may be said that without extensive plans to create competition and a very good business case, we do not see how such a merger or acquisition — by MTN of Telkom — will be approved.”