Last Monday, Telkom announced that it’s still under discussion related to MTN’s purchase of Telkom through a combination of cash and MTN shares.
Industry speculation suggests that MTN is primarily after Telkom’s fiber assets as a combination of their mobile units and spectrum will not be approved by the Competition Commission.
Regulatory expert Dominic Cull said combining spectrum from two operators under a merged entity would be a sticking point for ICASA and the Competition Commission.
Telkom’s warning followed shortly after Rain announced his intention to merge with Telkom to create a new telecommunications player with their combined assets.
Rain argued that such a merger would create a powerful third player to compete with the duopoly of Vodacom and MTN.
With two companies interested in Telkom, it raises the question of whether investors can expect a bidding war that could drive Telkom’s share price higher.
Sasfin Securities vice president David Shapiro said Rain didn’t have deep enough pockets to do anything big with Telkom.
Although Rain has big backers, including billionaire Patrice Motsepe’s African Rainbow Capital, he is not in the same league as MTN.
“Rain may have the money to buy it, but what concerns me is whether they have the money to make it work,” he said.
“I support MTN, but they will focus on a very specific area and have to get rid of some Telkom business, which won’t be easy,” he said.
Shapiro refers to the high capital requirements to operate a mobile network. Vodacom and MTN, for example, spend around R10 billion a year on their networks.
Wayne McCurrie of FNB Wealth and Investments said that even if there was a bidding war for Telkom, it would not double the share price.
“The stock price can go up 10-15%. You can come in and try the bidding war, but you don’t have 100% advantage,” he said.
He pointed out that the share price has already risen significantly since MTN announced its interest in acquiring Telkom.
Telkom’s share price jumped 26% after MTN’s announcement and continues to trade at these higher levels, as shown in the year-to-date share price chart below. below.
This article was first published on daily investor and is republished with permission.