Battle for Telkom may increase share price – but don’t expect it to double

On Monday, Telkom announced that it remains in discussions related to MTN buying Telkom through a combination of cash and shares in MTN.

Industry speculation suggests that MTN is mainly after Telkom’s fibre assets as a combination of their mobile units and spectrum will not be approved by the Competition Commission.

Regulatory expert Dominic Cull said combining the spectrum from two operators under a merged entity will be a sticking point for ICASA and the Competition Commission.

Telkom’s cautionary followed shortly after Rain’s announcement that it would like to merge with Telkom to create a new telecommunications player with their combined assets.

Rain argued that such a merger would create a strong third player to compete with Vodacom and MTN’s duopoly.

With two companies interested in Telkom, it raises the question of whether investors can expect a bidding war which can drive up Telkom’s share price.

Sasfin Securities deputy chairman David Shapiro said Rain does not have deep enough pockets to do anything big with Telkom.

Although Rain has big backers, including billionaire Patrice Motsepe’s African Rainbow Capital, it is not in the same league as MTN.

“Rain may have the money to buy it, but what concerns me is whether they have the money to run it,” he said.

“I am backing MTN, but they will focus on a very specific area and will have to get rid of some of Telkom’s businesses which will not be easy,” he said.

Shapiro refers to the high capital requirements to run a mobile network. Vodacom and MTN, for example, are spending around R10 billion per year on their networks.

Wayne McCurrie from FNB Wealth and Investments said that even if there is a bidding war for Telkom, it will not double the share price.

“The share price may increase by 10% to 15%. You may go in and try for the bidding war, but you do not have 100% upside,” he said.

He highlighted that the share price has already significantly increased since MTN said its interest in acquiring Telkom.

Telkom’s share price jumped by 26% after the MTN announcement and continues to trade at these higher levels, as shown in the year-to-date share price chart below.