South Africa’s data-only network provider Rain has tabled a formal nonbinding proposal to merge with mobile and fixed-line operator Telkom. The proposed deal will see Telkom acquiring Rain in return for Rain getting issued shares in Telkom. Telkom told shareholders on Friday that it received the proposal from Rain on the 14th of September.
About the Merger
Earlier this year, Rain publicly expressed interest in a merger with Telkom shortly after the Telkom/MTN talks became public. At the time, the parties noted that the discussions surrounding MTN’s acquisition of Telkom in return for shares or a combination of cash and shares in MTN were at an early stage and held no certainty. In the August announcement, Rain made several business cases of why the merger with Telkom would be favorable. The mobile network operator stated that a merger would enable Rain to leverage the fibre network of Openserve, a subsidiary of Telkom, and Rain’s 5G expertise to accelerate the rollout of 5G nationwide.
However, the initial proposal resulted in a public reprimand from Takeover Regulation Panel (TRP), given that there wasn’t any prior approval from the TRP as required in terms of Regulation 117 of the Companies Acts.
Speaking on the benefits of the merger Rain said in a comment, “Some consolidation in the industry is both desirable and inevitable as it leads to better utilization of infrastructure. It should not, however, be at the expense of competition which promotes greater access for consumers to data at more affordable prices.” “It is a logical alternative to simply selling to MTN and would also be consistent with the pro-competitive policies of the 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. “The proposed merged entity would create a formidable third major player to compete with what is effectively a duopoly in South Africa,” it added.”
In its statement to shareholders on Friday, Telkom said: “Telkom is proceeding with its strategy to unlock value for its shareholders, underpinned by the view that the Telkom share price does not reflect its intrinsic value. The Telkom board, conscious of economic and market dynamics and following its legal obligations, is considering various strategic options, including non-binding merger and acquisition proposals received to date.”
“The Telkom board is evaluating the Rain proposal and is not yet in a position to express a view thereon,” the company said.
Following the formal proposal from Rain, MTN, which has remained in talks with Telkom for a possible acquisition, has approached the Telkom board concerning the new development and the board stated that it will respond to the MTN letter fully in due course.