The proposed deal by MTN, Africa’s largest wireless carrier, to buy Telkom is likely to face major opposition from cabinet, three senior ministers in the economic cluster said on Friday.
The two companies on Friday announced they were in a discussion about a merger but cautioned those discussions are at “an early stage and there is no certainty that the transaction will be consummated”.
“Shareholders are advised that MTN Group Limited (MTN) and Telkom have entered into discussions in relation to MTN acquiring the entire issued share capital of Telkom in return for shares or a combination of cash and shares in MTN,” the statement from Telkom read. MTN released a similar statement.
For the deal to go through, it would need buy-in from the government, which has a 40% stake in Telkom. Another significant player is the Public Investment Corporation (PIC), which manages public servants’ pensions.
The PIC has significant exposure on both sides, owning a 14% stake in Telkom, whose CEO is Serame Taukobong, and a 22% interest in MTN Group, which is headed by Ralph Mupita.
The three ministers said they were taken aback by the announcement as they would expect such statements to come after cabinet is briefed.
Sunday World has learnt that Minister of Communications and Digital Technologies Khumbudzo Ntshavheni will brief cabinet about the potential deal in the coming days.
One of the ministers, who is close to President Cyril Ramaphosa, said the timing of the transaction will hurt the president politically and play into the hands of his rivals ahead of December’s ANC conference.
“Remember, the president was once the chairperson of MTN. We are now playing into hands of people who are saying that we are selling off state-owned entities to the president’s friends. This is not a good development.”
The sentiment was shared by the two other ministers, with one saying: “We are going to reject that thing. Khumbudzo and Enoch [Godongwana] will lead the process.”
Ramaphosa resigned as a non-executive director and chairman of MTN in 2013 when he cut his business interests following his election as ANC deputy president. He was appointed to the MTN board on October 1 2001.
Investors cheered the potential deal, with Telkom’s share price surging 26.8% following the release of the statement. Telkom is valued at about R17-billion on the JSE, valuing the government’s stake at about R7-billion, while MTN is valued at R254-billion.
Depending on how the deal is structured, the government might end up with a significant stake in a merged entity, more valuable than its stake in Telkom.
Chief investment officer at Aeon Investment Management Asief Mohamed said the potential merger of MTN and Telkom bodes well for a home-grown African telecoms giant.
“MTN Group has been one of South Africa’s greatest success stories. The Competition Commission should look favourably at such a merger.
“MTN will be prudent in making sure that competition is well entrenched in South Africa…
“The government, as a shareholder in Telkom, should welcome this merger as without the deep pocket, skills and experience of MTN, the prospects for its shareholding in Telkom look bleak.
“MTN should exercise caution in being prudent by not overpaying for Telkom as it may take time and significant resources to manage Telkom more optimally.”
Cosatu spokesperson Sizwe Pamla said the deal will entrench the power of monopolies and destroy the economy.
“Generally, these mergers and acquisitions are not good for South Africa,” he said.
“These big telecommunication companies such as Cell C, MTN and Vodacom have been monopolising the market for years. Currently we have the issue of exorbitant data costs because of this monopoly.
“We expect the Competition Commission to block this move because they failed previously.”
In 2015, the commission blocked a proposed radio access network sharing and bilateral roaming deal between Telkom and MTN, saying at the time the “transaction is likely to substantially prevent or lessen competition in the mobile services market”.
Commission spokesperson Siyabulela Makunga said: “The commission notes the developments, but we would not want to speculate as we have not yet received a notification on the contemplated merger.”
Ntshavheni’s spokesperson Tlangelani Manganye said the minister was informed about “the non-binding offer by Telkom and MTN”, though she was not provided with other details as the parties have only agreed to start discussions.
“As the largest shareholder of Telkom on behalf of the SA government she will receive details of the possible transaction with other shareholders when the discussions are concluded. If there is a need, she will then brief cabinet. Telkom is a publicly listed company and its decisions must be approved by its board and shareholders,” Manganye said.
ANC head of economic transformation Mmamoloko Kubayi said the party will keep a close eye on the proposed deal.
“From the economic transformation subcommittee we will await details of this transaction as our concern beyond the matter of government ownership is the concern of consolidation of the sector.”
PIC spokesperson Sekgoela Sekgoela said: “The Public Investment Corporation (PIC) notes the cautionary announcement on the potential acquisition of Telkom Limited SOC by MTN Group Limited. Given that both companies are listed on the Johannesburg Stock Exchange, the PIC is mindful not to make comments that are price-sensitive, except to say it will make a considered decision on the matter if and when a formal offer is made and more clarity is given to the market. ”
The story has been updated to include a comment from the PIC. The print version of the story did not contain the comment from the PIC.
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