Telkom and MTN merger talks terminate, leaving a way forward for the rain proposal

Telkom SA’s share price slumped more than 24% yesterday after it announced that the talks about its acquisition by rival MTN were over. Photo:Tracey Adams / ANA

Telkom SA’s share price slumped more than 24% yesterday after it announced that the talks about its acquisition by rival MTN were over. Photo:Tracey Adams / ANA

Published Oct 20, 2022

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Telkom SA’s share price slumped more than 24% yesterday after it announced that the talks about its acquisition by rival MTN were over as the parties were unable to reach agreement, and there is uncertainty too about rain’ s offer.

The share price was trading at R33.95 yesterday afternoon.

The slump comes after the price rose sharply from as low as R32.76 in June, just prior to the first announcement in July that MTN and Telkom were in talks.

Mergence Investment Managers head of equity Peter Taekendesa said the share price fell back to where it had been prior to when MTN first make a proposal to Telkom, so investors had not even factored in a possible premium for Telkom doing another transaction with another party.

Takaendesa said depending on how tight Telkom’s language was in yesterday’ announcement on ending the shareholder cautionary notice, its strict reading indicated Telkom might also no longer be considering other offers, including one from rain.

There was speculation in November the year before already of a possible tie-up following a tentative approach by MTN, but Telkom was reportedly not interested at the time. MTN’s share price fell 3.19% to R124.72.

Telkom had also received an unsolicited proposal from data-only mobile operator rain in September, an expression of interest that drew the ire of South Africa’s takeover regulator as no approvals had been sought for such a deal.

The termination of the talks elicited comment on Twitter with, for instance, @Hazelwood_dave or “The Passive Income Guy” writing: “A Telkom and rain merger will not solve Telkom’s problems, but Telkom is saying that legally they could not agree to exclusivity talks with MTN. So rain’s advances essentially torpedoed the talks.”

@benpooler commented: “TGM interims coming shortly. That may put share price under further pressure. We are in a bear market. Perhaps MTN thinks it’s better to sit on the sidelines and wait for a cheaper entry. Cos MTN has coveted Telkom for a long time now. The rain approach is sure to fail.”

A statement released earlier by Telkom said the discussions were terminated because Telkom was not in a position to provide MTN with assurances around exclusivity.

“Discussions were at an early stage and had not progressed to due diligence nor had a binding offer been received by the Telkom board of directors,” Telkom said.

Telkom’s board said it would consider all bona fide offers. “Shareholders are, therefore, advised that they no longer need to exercise caution when dealing in the company’s securities,” it said.

“Telkom continues to execute its strategy for shareholders and will provide an update to the market on progress in due course,” it said.

The government, according to previous reports, also received an unsolicited R7 billion bid this year for its 40.5% stake in Telkom, from investment firm Toto Consortium, part of a consortium that controls a 24% stake in Richards Bay Minerals, majority owned by mining giant Rio Tinto.

Rain has said the deal it proposed with Telkom had the potential to create a strong 5G player in the market. There would be benefits in terms of infrastructure, while a “duopoly” between Vodacom and MTN would be avoided.

ITWeb reported that the development was likely to resonate well with labour unions, which were opposed to the merger, as Solidarity and the Communication Workers Union had recently expressed fears of a jobs bloodbath should a MTN-Telkom merger deal occur.

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