The race to control Telkom assets has intensified, as mobile data-only network Rain has officially entered the fray, expressing interest in merging with the telephony group.
Telkom announced to shareholders today that it is evaluating Rain’s non-binding tie-up proposal, although it is not yet ready to express a view on the offer.
The latest development comes after Rain’s initial bid in August failed, as it was deemed illegal by the Johannesburg Stock Exchange’s (JSE’s) Takeover Regulation Panel (TRP).
At the time, Rain declared its desire to tie-up with Telkom without prior approval of the JSE panel − a move that irked the TRP.
The TRP said the Rain announcement was issued without its prior approval, as required in terms of Regulation 117 of the Companies Regulations.
Rain then withdrew its bid after being chastised for acting illegally in making its proposal public.
Nonetheless, today Telkom informed the market and shareholders that Rain has now officially approached it with a tie-up proposal.
“Shareholders are advised that Telkom received a non-binding proposal from Rain on 14 September 2022, in terms of which Rain proposes the potential acquisition of Rain by Telkom for newly issued shares in Telkom. The Telkom board is evaluating the Rain proposal and is not yet in a position to express a view thereon.”
If successful, Rain and Telkom combined will become a telco titan, with a value north of R40 billion. Rain is valued at around R16.67 billion, while Telkom’s market cap is around R24.24 billion.
The data-only network is controlled by diverse shareholders, including Quarme Private Equity (Paul Harris): 41.36%; African Rainbow Capital: 20.2%; Pluvial: 11.75%; Montegray Capital (Michael Jordaan): 11.53%; and Ata Fund 1: 6.42%.
The company is positive on earnings before interest, taxes, depreciation and amortisation (EBITDA). Rain exceeded R1 billion EBITDA for FY22 ending February 2022.
EBITDA is a widely used measure of core corporate profitability.
In terms of its business model, Rain’s primary product is data, and it is building a dedicated national LTE-Advanced network and infrastructure.
The company operates two units: Rain Mobile, which sells data directly to the public; and business-to-business, which provides fixed wireless connectivity to business end-users through intermediary internet service providers.
Rain participated in the recently concluded spectrum auction, investing over a billion rand to secure allocations of 10MHz spectrum in the 700MHz band, and 10MHz of the 2.6GHz band, while Telkom picked up two pieces of 10MHz in the 800MHz band.
Interest in Telkom assets has gathered momentum since MTN announced it intended to acquire the telephony group and discussions to take control of the company were in progress.
Toto Investments also remains in contention to buy Telkom, after making an offer to government, which holds a significant share in the company.
The potential takeover of Telkom has sparked industry-wide debate, with analysts telling ITWeb recently that Vodacom’s move to acquire equity in Community Investment Ventures Holdings spooked the telecoms market, opening a race on Telkom assets.
The prospects of a new mega fibre company on the back of fierce competition in the fibre market startled the market, according to the analysts.
Telkom has become attractive to the different suitors because of its extensive infrastructure. Telkom’s Openserve currently connects 400 000-plus homes to its fibre network, and the telephony group’s data centres and business operations are also attractive.
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