According to industry reports, MTN has been mandated and required to get South Africa’s Competition Commission’s approval before it could be allowed to acquire government-owned Telkom South Africa. MTN has also been told that it must structure the deal extremely carefully.
Earlier this week, MTN and Telkom announced that the two companies were in early discussions regarding a potential acquisition. With MTN aiming to acquire Telkom’s entire issued share capital in exchange for shares or a combination of cash and shares.
According to analysis conducted by Ellipsis Regulatory Solutions founder Dominic Cull, MTN needs to keep up with the Jones’s, but the deal will likely be less than a total acquisition.
“It will need some kind of structure to address the obvious competition law concerns,” Cull added.
Telkom’s market capitalisation at market close on Monday, 18 July, was US$1.2 billion, which 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.
It is worth noting that in 2015, the Competition Commission blocked a deal for Telkom’s cellular infrastructure, citing concerns over decreased competition.
However, MTN is considering buying Telkom without its mobile network division.
According to Cull, any deal that includes radio frequency spectrum would be complex. However, a combined MTN-Telkom Mobile would hold more spectrum than any other operator in South Africa and give them a distinct advantage.
Cull said, “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.”
“Whilst MTN may have plans to ensure competition within their market, the macro-economic impact of the merger or acquisition will be looked at by the Commission,” he added.
Cull also mentioned that this would 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, we can say that without extensive plans to create competition and an excellent business case, we do not see how such a merger or acquisition — by MTN of Telkom — will be approved,” Cull said.