Profile - Reader3082332

Telkom-Cell C deal under wraps

In­vestors in­formed: On a call with in­vestors on Fri­day, CEO Sipho Maseko said Telkom ap­proached Cell C with a price for its op­er­a­tion, but would not dis­close the amount.

The largest shareholders in Telkom and Cell C say they are in the dark about the details of the proposed tie-up between the two telecommunications companies. The government, which owns about 40% of the country’s biggest fixed-line operator, said at the weekend it had not been formally apprised of the deal, after a similar announcement by Blue Label on Friday.

The largest shareholders in Telkom and Cell C say they are in the dark about the details of the proposed tie-up between the two telecommunications firms.

The government, which owns about 40% of the country’s biggest fixed-line operator, said at the weekend it has not been formally apprised of the deal, after a similar announcement by Blue Label on Friday.

To get the deal approved, Telkom would likely need the buy-in of both its biggest investor, the government, and Blue Label, which holds 45% of Cell C.

The department of communications & digital technologies, headed by minister Stella Ndabeni-Abrahams, said it has not been informed of the deal.

“When such plans are presented, and based on the context, the ministry will accordingly apply its mind,” the department said.

On Friday, Blue Label said its board “has not been formally apprised of any of the details regarding the Telkom proposal”.

Despite the financial troubles facing Cell C, Telkom is confident about the prospect of combining the two companies’ efforts in the telecommunications space.

Cell C has 16-million subscribers, while Telkom has 11.5million subscribers.

THIRD OPERATOR

The potential acquisition is an opportunity to create a competitive third telecom operator in the SA mobile market, said Nomalungelo Faku, group executive for communication and public relations at Telkom.

“Cell C and Telkom’s customer base and distribution network are complementary.

The potential acquisition will enable Telkom to integrate networks, with potentially meaningful synergies, as well as capital expenditure and operational expenditure savings,” said Faku.

Speculation about Telkom’s possible acquisition of Cell C was confirmed on Friday when the former said it has made an offer to acquire SA’s third-largest mobile operator.

Telkom has substantially concluded its due diligence, but discussions are still at a preliminary stage, the company said.

Cell C confirmed that it has received a nonbinding offer from Telkom and said its board is reviewing it.

The operator is battling with total debt of about R8.9bn.

Its rescue has proved to be disastrous for Blue Label as the cellphone operator has failed to make inroads against bigger rivals MTN and Vodacom.

On a call with investors on Friday, CEO Sipho Maseko said Telkom has approached Cell C with a price for its operation, but would not disclose the amount.

ENTERPRISE VALUE

Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the enterprise value could be “at least R10bn even if Cell C operational numbers are revised lower post further due diligence”.

Takaendesa said buying Cell C at the right price would give Telkom some operational scale, accelerate its strategy to migrate customers to next-generation technologies and give it access to lower-band, sub-1GHz spectrum suitable for wider network coverage.

Telkom has a spectrum advantage on higher spectrum bands but lacks access to the highly demanded lower bands, said Takaendesa.

Philip Short, an analyst at Old Mutual, said “what’s really at play here is that Telkom is trying to delay or scupper the extended MTN/Cell C roaming agreement that is currently being negotiated”.

The extended MTN/Cell C roaming agreement will lead to a restructuring of Cell C’s balance sheet, via the Buffett Consortium, that will make Cell C a viable entity and a more serious competitor, he said.

“Why would Telkom want that?” he said, adding “there’s an incentive for Telkom to delay the MTN deal by throwing its hat in the ring”.

Cell C already has access to MTN’s network in areas where it lacks coverage.