Rain Telecom Sends Formal Proposal for Telkom Merger
Telkom has received a formal, non-binding proposal from Rain Telecom that would see the latter purchase the former by issuing additional Telkom shares. The proposal from Rain was received by Telkom on September 14—more than two weeks ago, the company informed shareholders on Friday. According to the firm, “The Telkom board is examining the Rain proposal and is not yet in a position to offer a perspective thereon.”
Soon after the Telkom/MTN negotiations were made public in August, Rain declared its intention to present Telkom’s board with a proposal suggesting that the incumbent, partially state-owned telecommunications company merge with it rather than be purchased wholly by MTN.
Recall that upon submitting its initial merger proposal to the Telkom board, Rain withdrew its announcement, following a harsh warning from the Takeover Regulation Panel (TRP), which required the cellular network operator to recant its remark. The TRP claimed that the company violated instructions not to make any announcements without its consent just hours after the firm released a statement to the media.
A joint venture between Telkom and Rain, according to Rain, will result in the development of a “5G powerhouse” in South Africa. It stated that agreement would still be required on the transaction’s conditions, including the valuation and structure. Rain telecom asserted that there was a “compelling business rationale” for merging the enterprises, nonetheless.
“Some consolidation in the industry is both desirable and inevitable as it leads to better utilisation of infrastructure. It should not, however, be at the expense of competition which promotes greater access for consumers to data at more affordable prices,” Rain said in clear criticism of the impact of a possible MTN acquisition of Telkom.
“Telkom is advancing with its strategy to unlock value for its shareholders, anchored by the belief that the Telkom share price does not reflect its inherent value,” The Telkom board, conscious of economic and market dynamics and in accordance with its legal obligations, is considering various strategic options, including non-binding merger and acquisition proposals received to date.”
“The proposed merged entity would create a formidable third major player to compete with what is effectively a duopoly in South Africa,” it added.
“It is a logical alternative to simply selling to MTN and would also be consistent with the pro-competitive policies of government. The merger would bring together the considerable infrastructure and mobile businesses of Telkom and the successful, new-age 4G and 5G businesses of Rain.”