Rain “engaging” regulator over order to retract Telkom merger statement
Rain has not withdrawn its statement of a proposed offer to merge with Telkom after the Takeover Regulation Panel (TRP) reprimanded the company over its announcement.
Instead, according to feedback from Rain CEO Brandon Leigh to Business Times, the operator has sought legal advice and hoped to “engage constructively” with the TRP over the matter.
“Clearly, should our engagement with Telkom give rise to a potential transaction, we will fully comply with all legal obligations,” Leigh said.
Rain announced it had formally requested to present the Telkom board with a proposal to merge the two companies on Thursday, 11 August 2022.
“Although the terms of such a transaction — such as valuation and structure — would still need to be agreed, Rain believes there is a compelling business case in combining the businesses,” the company said.
The operator maintains that such a merger could create a 5G “powerhouse” and stronger third mobile network to compete with Vodacom and MTN’s so-called “telco duopoly” in South Africa.
Rain said that if its sites and Telkom’s were combined, their number would be equivalent to that of Vodacom and MTN, and the avoidance of duplication would result in material capital and operational cost savings.
Rain was the first operator to launch a commercial 5G network, offering fixed uncapped products with fibre-like speeds and latency.
However, mere hours after Rain’s announcement, the TRP issued a statement instructing the operator to withdraw it and advised shareholders and the market to disregard it.
“The TRP has noted, with grave concern, a press announcement issued by Rain proprietary limited regarding a potential offer to merge with Telkom on 11 August 2022,” the panel said.
“We wish to inform the market that the announcement was issued by Rain without the prior approval of the TRP as required in terms of Regulation 117 of the Companies Regulations.”
“Furthermore, the announcement was issued notwithstanding the TRP’s instructions to Rain that no such announcement should be made without the prior approval of the TRP.”
Telkom also issued a statement shortly after that in which it denied receiving any offer from Rain.
“Telkom can confirm that no offer or proposal has been received from Rain,” the operator said.
“If an offer or formal proposal is received from Rain, the board of Telkom will consider it in accordance with its legal obligations.”
Rain’s proposal comes after MTN and Telkom advised shareholders they had entered into discussions on MTN acquiring all of Telkom’s issued share capital on 15 July 2022.
MTN had previously offered to buy Telkom’s radio access network in 2014, but the Competition Commission blocked a potential deal over anti-competitive concerns.
Rain holds that its offer provides a more pro-competitive alternative than selling Telkom to MTN.
“Some consolidation in the industry is both desirable and inevitable as it leads to better utilisation of infrastructure,” Rain explained.
“It should not, however, be at the expense of competition which promotes greater access for consumers to data at more affordable prices.”
Investment firm Toto Consortium also made an offer of $433 million (R7 billion) for the government’s 40.5% stake in Telkom.
Its offer was based on the 30-day average Telkom share price, minus a 20% black empowerment discount.
However, communications minister Khumbudzo Ntshavheni told Bloomberg government had no plans to sell its Telkom shares.
The same company previously showed interest in acquiring South Africa Airways but was rejected within days.
Telkom’s share price has climbed by around 40% since the potential acquisition by MTN was first announced.
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