Why Telkom is back at Cell C’s door

Telkom has 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 South Africa and the Buffett Consortium to recapitalise 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 e-mailed 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.”

Third time lucky?

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 recapitalisation with Blue Label Telecoms, which owns 45% of Cell C.

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, which have about 70 million subscribers in the country. Telkom has been investing heavily in fibre and mobile network infrastructure to offset the decline in landline and voice revenues.  — (c) 2019 Bloomberg LP