Rain proposes Telkom merge with it rather than with MTN

Upstart high-speed network operator rain has showered on the buyout talks between mobile operator MTN and Telkom, proposing that South Africa’s legacy phone company merge with it rather than with Africa’s largest mobile operator.
No formal discussions have yet taken place, and rain has not yet put any financial proposals on the table. Instead, rain, which is not listed, has made a formal request to present to the Telkom board a proposal which would result in the merger of the two companies.
MTN proposed a takeover deal last month which would be paid for in cash and shares, and Telkom’s share price jumped 33.3% to R44.6, valuing the company at about R22-billion.
Though financially lucrative for Telkom shareholders, the problem with consummating this deal is that it would result in a much more concentrated telecoms market in South Africa, something which was already a concern for competition authorities before the deal.
A merger with the much smaller rain may not be so lucrative for shareholders since it may not include a cash premium, but it may have more of a chance of clearing the regulatory hurdles.
Read more in Daily Maverick: “MTN wants to buy Telkom. How weird is that? Actually, not so weird”
Rain’s press statement heavily emphasises this point, saying some consolidation in the industry is both desirable and inevitable as it leads to better use of infrastructure. “It should not, however, be at the expense of competition which promotes greater access for consumers to data at more affordable prices.”
A ‘logical alternative’
The proposed merged entity would create a formidable third major player to compete with what is effectively a duopoly in South Africa, the company said.
Although the terms of such a transaction, such as valuation and structure, would still need to be agreed, rain believes there is a compelling business case in combining the businesses, its statement says.
But a merger with rain would be 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”.
Being a private company, rain does not reveal how many users are on its networks, but following its formation in 2019, the company says it has “little debt and sufficient facilities to fund its growth”.
Read more in Daily Maverick: “Telecommunications shake-up – MTN in talks to acquire Telkom”
“In line with ...