Is Telkom eyeing Cell C?

 

Struggling mobile network operator Cell C has long been identified as a company that is likely to be gobbled up by a big local telco or a foreign firm. Gugu Lourie takes a closer look at this potential deal, which has seen speculation about a number of potential suitors, including French telecoms group Orange, South Africa’s Telkom and multinational technology firm Dimension Data.


Last month, Cell C’s parent company, Dubai-based Oger Telecom, confirmed that it is looking for buyers for its 75%
stake in the mobile operator. Goldman Sachs has been appointed to help with the process. Cell C, which was launched in 2001 as the country’s third mobile network operator, is yet to earn a net profit.

A cautionary issued by Telkom on 28 September, advising shareholders that it is involved in unspecified talks that
may affect its share price, has fuelled speculation that it is looking to buy Oger’s stake in Cell C.

Bloomberg reported that Telkom has offered R18bn for the stake, substantially below the R22bn it said Oger wants.

Earlier this month Telkom spokesperson Jacqui O’Sullivan said that there was clearly much speculation in the
market since Oger made it known that it was looking to sell its majority stake in Cell C.

Jose Dos Santos, Cell C's CEO
Jose Dos Santos, Cell C’s CEO

“At the right price, Telkom would certainly consider Cell C, as it would any other synergistic partnerships either locally or internationally,” she said.

 

“Telkom’s growth will be predicated on both organic and inorganic growth so acquisitions, such as the recently acquired Business Connexion, certainly remain an option. While much improved, our mobile business remains small and to achieve scalability an option such as Cell C could be part of the approach,” she added.

Telkom, with a market capitalisation of just under R35bn, has seen its share price drop nearly 15% in the past six months. The fixed-line operator was embroiled in a labour battle with unions while implementing cost-cutting exercise initiatives.

A telecoms analyst, who asked not to be named, said it would make “sense for Telkom to buy Cell C as this will make
them a formidable business and there is no other business locally that can create synergies for Telkom”.

The analyst added: “A deal with Cell C may bring back the strength that Telkom used to have before selling its 15% shareholding in Vodacom in 2008 to Vodafone for R22.5bn. Cell C is no longer a small company; yes it is under pressure to perform, but it’s taking more customers from its rivals Vodacom and MTN.”

 

A second analyst added: “The possible buyout of Cell C could be part of Telkom’s strategy to finally deliver converge services to its customers, as its mobile operation, Telkom Mobile [formerly known as 8ta], is too small to execute that plan.”

Asked about an update on talks by its parent company Oger Telecom to sell its stake in the business, Cell C CEO José Dos Santos told a media briefing in September that there were reports that cited Telkom as an interested party.

“If Telkom is interested in buying Cell C, they must value the business and pay the right price,” Dos Santos said.

Meanwhile, the race to buy more telecoms assets by SA’s big telcos is heating up. Last week, MTN announced
it has concluded a deal with MultiChoice to acquire fibre network deployer Smart Village for an undisclosed amount.

Smart Village, which focuses on fibre networks in gated communities, has an existing network that passes 29 000
residential houses and stands in Gauteng, the Western Cape and KwaZulu-Natal.

MTN said the deal will give MTN Business the ability to provide wholesale access to 4 228 businesses passed by
Smart Village.


 

 

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