Cell C says MTN’s proposed Telkom acquisition must be handled with care

Cell C CEO Douglas Craigie Stevenson says careful regulatory scrutiny is needed for MTN’s proposed acquisition of Telkom, the Sunday Times reports.

MTN and Telkom announced on 15 July that the companies were in early discussions for a possible acquisition.

No purchase price or terms have been announced, except that MTN aims to acquire Telkom’s entire issued share capital in exchange for MTN stock or a combination of cash and shares.

According to Craigie Stevenson, regulators should consider that South Africa’s telecommunications market has changed.

Where previously you had mobile operators competing to roll out infrastructure, the market has now been split into two categories.

On the one side, you still have infrastructure developers like MTN, Vodacom, and Telkom. On the other, you have infrastructure buyers like Cell C.

Regulators must carefully consider whether smaller operators like Cell C can continue to compete as infrastructure buyers, Craigie Stevenson said.

He said industry regulator Icasa and the Competition Commission could consider several pro-completive measures such as imposing wholesale regulations on infrastructure developers.

Cell C has been a staunch opponent to market consolidation in South Africa — except when Telkom has made offers to buy it.

Telkom announced in March 2014 that it was in negotiations for a potential sale of its radio network assets to MTN.

Cell C opposed the deal, and the Competition Commission ultimately blocked it, saying MTN would gain a significant market advantage.

It also believed the merger would entrench a market duopoly, with Vodacom and MTN dominating.

All of South Africa’s mobile network operators fiercely opposed such large mergers in Competition Commission hearings.

Vodacom abandoned its bid to buy Neotel after similar pushback. Neotel was eventually sold to Liquid Telecom.

These fights essentially made it impossible for South Africa’s mobile network operators to acquire any other telecommunications provider that owned sought-after radio frequency spectrum.

Telkom made several offers to buy Cell C, with speculation about a possible acquisition dating back as far as 2009.

In November 2015, Telkom announced it was in discussions with Cell C to acquire all shares in the company.

However, the companies halted talks ten days later when they couldn’t agree on a price.

Bloomberg reported that Telkom offered R14 billion at the time, while Cell C’s former owner Oger Telecom wanted R22 billion for a 75% stake.

In February 2017, Telkom reportedly considered a R13 billion bid for Cell C. As before, nothing came of the deal.

On 12 November 2019, Bloomberg again reported that Telkom was making overtures to acquire Cell C.

Telkom officially confirmed the talks on 19 November. Ten days later, Telkom announced Cell C rejected its offer.

Since then, Cell C has made progress recapitalising its R7.3 billion debt in the hopes of saving the company.

Cell C’s priority secured lenders, who made up around R2.95 billion of that debt, voted to take an 80% haircut.

The vote is binding on all noteholders.

Cell C owner Blue Label said the vote was a significant milestone, and the final stages of the recapitalisation transaction are being implemented.

Blue Label said it expects the transaction to proceed to final close in late July 2022.

Now read: Uncapped fibre to every home in South Africa for under R100 per month

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Cell C says MTN’s proposed Telkom acquisition must be handled with care