MTN South Africa plans to acquire its rival Telkom

MTN Group Ltd. is in talks to acquire smaller domestic rival Telkom SA SOC Ltd. in a deal that would make the both companies the largest South African mobile-phone operator by number of subscribers. 

Bloomberg reports both companies are in a discussion over a deal for MTN to buy all of Telkom either with shares or a combination of cash and stock.

The discussion between the South African companies is still at an early stage and as Bloomberg notes, “there is no certainty the transaction will be completed.”

“Shareholders are advised that MTN and Telkom SA SOC Limited [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,” MTN said in an announcement.

MTN and Telkom are respectively the second and third largest operators in South Africa, so any merger of the two would face substantial regulatory hurdles since the resulting entity would take a clear lead in the market.

As Reuters notes in its report, the deal between MTN and Telkom, if successful, would bolster MTN in its competition against Vodacom Group, the market leader.

The potential $1 billion-plus deal would give MTN access to Telkom’s fibre assets, seen as a must for expanding 4G and 5G mobile services.

If successful, the deal would give MTN access to Telkom’s Openserve fibre business, which made 13.4 billion rand ($782 million) in revenues for the year ended March 31 and connects around 2.5 million premises.

Vodacom recently agreed to buy a co-controlling interest in the fibre assets of Community Investment Ventures Holdings, putting pressure on MTN to respond.

MTN announced its exit from the Middle East in 2020 to focus on the high growth African market.

AJ Snyman, an investment analyst at Peregrine Capital, said he thought there was “zero” chance South Africa’s Competition Commission would approve the deal in its current form.

“If the deal goes through, then in the mobile space, MTN together with Telkom will be at least over 50% market share and that’s clearly, obviously a dominant market position,” Snyman said.