Telkom to acquire embattled Cell C having concluded the due diligence

SOUTH AFRICA – Telkom, a telecommunication provider has made an offer to acquire Cell C. Telkom has substantially concluded its due diligence, however, the company said in statement that the discussions are at a preliminary stage, reports Business Live.

The potential acquisition will be subject to Cell C completing a financial restructuring to ensure its gearing levels are reduced to a sustainable level.

As specified by Telkom, and commercial contractual relationships are renegotiated to terms acceptable to Telkom, it said.

This comes after Telkom said that it was in talks about an acquisition, sparking speculation that it is looking to buy the debt-laden operator as part of its plan to break the stranglehold of MTN and Vodacom.

Cell C’s rescue has proved to be disastrous for its largest shareholder, Blue Label Telecoms, as the cell phone operator failed to make inroads against bigger rivals MTN and Vodacom.

Despite Cell C’s financial troubles, the operator has 16-million subscribers; a strong consumer brand in SA as the third largest mobile operator; spectrum assets and is the preferred partner for mobile virtual network operators (MVNO) such as Virgin Mobile and FNB Connect.

MVNOs do not own network infrastructure but lease capacity from Cell C to sell data and voice services to consumers.

Telkom, which grew its own subscriber base by 85% in the last financial year to 9.7 million, has been working to transform its business away from fixed-line provision to a data services player.

It had increased its subscribers to 11.5 million by the end of September.

If successful, the combination of Cell C and Telkom would create a strong competitor to Vodacom and MTN. Of the 95-million active SIM cards in SA, MTN and Vodacom have 70 million.

However, this is not the first time that the 40% government-owned Telkom has made a bid to buy Cell C. It initially attempted to take over Cell C in 2017, only to be rejected in favour of a recapitalisation plan led by Blue Label. That deal reduced Cell C’s debt by two-thirds.

Telkom said the potential acquisition will be subject to a number of regulatory approvals.