Rain has formally made a non-binding proposal to Telkom that would see the latter acquire the former through the issue of new Telkom shares.
Telkom told shareholders on Friday that it received the proposal from Rain on 14 September, or more than two weeks ago. “The Telkom board is evaluating the Rain proposal and is not yet in a position to express a view thereon,” the company said.
Telkom remains locked in talks with larger rival MTN Group about a possible combination.
In August, not long after the Telkom/MTN talks became public, Rain announced that it planned to table a proposal to Telkom’s board that the partially state-owned telecommunications incumbent should instead merge with the plucky wireless broadband provider.
In a statement, Rain said there was a strong case to be made for a Telkom/Rain combination as it would create a “5G powerhouse” in South Africa. It said the terms of transaction, including valuation and structure, would “still need to be agreed”. However, Rain said there was a “compelling business case in combining the businesses”.
“Some consolidation in the industry is both desirable and inevitable as it leads to better utilisation of infrastructure. It should not, however, be at the expense of competition which promotes greater access for consumers to data at more affordable prices,” Rain said in clear criticism of the impact of a possible MTN acquisition of Telkom.
“The proposed merged entity would create a formidable third major player to compete with what is effectively a duopoly in South Africa,” it added.
“It is 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.”
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 in accordance with its legal obligations, is considering various strategic options, including non-binding merger and acquisition proposals received to date.”