Telkom in talks to take over Cell C

By Dineo Faku Time of article published Nov 18, 2019

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JOHANNESBURG - Partially state-owned Telkom on Friday confirmed that it was in talks to take-over struggling Cell C, which analysts said would likely receive overwhelming shareholder backing, given its potential to boost Telkom’s infrastructure. \

Telkom said it planned to acquire Cell C on condition that it finalised its restructuring plan that addressed its debt burden, which had ballooned to about R9billion.

“The potential acquisition will be subject to Cell C completing a financial restructuring to ensure that its gearing levels are reduced to a sustainable level as specified by Telkom and commercial contractual relationships are renegotiated to terms acceptable to Telkom,” Telkom said.

Telkom told investors it had substantially concluded its due diligence. However, discussions were at a preliminary stage, and the potential acquisition would be subject to regulatory approvals. In a separate statement, on Friday, Cell C confirmed that it had received a non-binding offer from Telkom.

“Cell C remains focused on ensuring operational efficiencies, restructuring its balance sheet, implementing a revised network strategy and improving overall liquidity,” Cell C said.

Cell C, which is 45percent owned by JSE-listed Blue Label Telecoms, said its talks for an expanded roaming agreement were at an advanced stage.

In August, Cell C said it was talking with MTN for an expanded roaming agreement that would help it to manage its network capacity requirements.

“Independent financial and legal advisers have been appointed representing the lenders and constructive discussions on the recapitalisation are under way with them and other stakeholders in respect of various proposals,” said Cell C on Friday.

Cell C, which is in the process of restructuring its balance sheet and operations, earlier this year announced plans to simplify the business model.

The director of pricing research at Johannesburg-based Africa Analysis, Ofentse Dazela, said while he expected the takeover to receive overwhelming support from Telkom shareholders, Telkom might have been a little bit too late in its bid for Cell C. Dazela said Telkom was clearly eyeing Cell C’s customer base and the infrastructure rolled out by Cell C, which would reduce its almost complete reliance on competitor networks.

“I do, however, get a sense that Telkom is making its bid rather a little late, given that Cell has been engaging MTN for some time with the view to surrender its infrastructure to the latter. If Cell C still has an appetite to continue with its plan to run the biggest mobile virtual network operator in the country, then there is a pretty good chance that they opt to partner with MTN, as the Telkom deal with probably results in an outright acquisition of the company,” Dazela said.

Cell C, South Africa’s third-biggest mobile operator, lost market share to its peers MTN and Vodacom after the 2011 tower agreements and other risk-based pricing on certain contracts weighed heavily on the business.

A portfolio manager at Cape Town-based Mergence Investment Managers, Peter Takaendesa, said it was difficult to restructure a company in Cell C’s position, but it was necessary for any potential buyer.

“They do not want to inherit onerous commercial relationships that have made the business unsustainable in the past. At least the Telkom offer provides a reference point for Cell C lenders and may actually improve Cell C’s chances of success in renegotiating its financial restructuring,” Takaendesa said.

Old Mutual Investment Group analyst Philip Short said it was important that Cell C completed the restructuring. “This restructuring will result in lower debt levels and lower interest rates than Cell C currently has,” said Short.

Telkom shares closed 2.65percent lower at R55.88 on the JSE on Friday, while Blue Label closed 1.16percent lower at R2.55.


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