Telkom [JSE: TKG] offered to buy Cell C and combine South Africa’s two smallest mobile network operators to better compete against larger rivals, according to people familiar with the matter.
The bid includes a plan to reduce Cell C’s debt and renegotiate contracts with suppliers, the people said, asking not to be identified because negotiations are ongoing. Telkom wants to take over the management of Cell C’s business, they said.
The approach comes as Cell C explores options with MTN and local investors known as the Buffett Consortium to recapitalize the company, which may include the sale of some of its assets. The two offers will be considered side-by-side as Cell C and its owners try to restructure R9 billion of debt, the people said.
Talks with MTN are at an advanced stage, Cell C said in an emailed statement on Tuesday, declining to comment on Telkom.
“Cell C remains focused on ensuring operational efficiencies, restructuring its balance sheet, implementing a revised network strategy and improving overall liquidity,” the company said. “Cell C will look at any opportunity that will assist with the company’s long-term viability. Any opportunity will need to undergo a due-diligence process that takes into account all stakeholders.”
MTN is still in discussions with Cell C “regarding opportunities that could benefit both businesses,” spokeswoman Jacqui O’Sullivan said in an email. “These discussions are progressing and we can therefore not comment further at this stage.”
Telkom said it was in talks on a potential acquisition on Tuesday, without identifying the target. This is the third time that the Pretoria-based firm is trying to buy Cell C after the target rather opted for a recapitalization with Blue Label Telecoms, which owns 45% of Cell C.
Blue Label’s shares extended gains to climb as much as 14%, the most since September 20. Telkom rose 4.3%.
A tie-up between Cell C and Telkom’s mobile-phone division would create a business with about 22 million subscribers. That would pose a slightly greater threat to the dominance of South Africa’s two other operators, MTN and Vodacom Group Ltd., which have about 70 million subscribers in the country. Telkom has been investing heavily in fiber and mobile network infrastructure to offset the decline in land-line and voice revenues.
“A tie-up between Cell-C and Telkom will make sense with significant synergies,” Alastair Jones, an analyst at New Street Research LLP, wrote in a note. “The combined entity can build a network that has double the capacity of Vodacom and should be the driver behind accelerating data pricing declines.”