Johannesburg - MTN Group [JSE:MTN] is exploring whether to pursue an acquisition of a majority stake in landline provider Telkom [JSE:TKG] to challenge Vodacom’s [JSE:VOD] dominance in South Africa’s telecommunications market, according to people familiar with the matter.
MTN has held exploratory discussions in recent months about a possible offer for Pretoria-based Telkom, said two of the people, asking not to be identified because the deliberations are private.
A bid isn’t imminent as a final decision hasn’t been made. With a market value of $3.4bn and about 40% owned by the state, Telkom controls South Africa’s largest landline network and also sells mobile-phone packages.
Johannesburg-based MTN has been seeking a transformational deal as revenue shrinks in its home market, where it trails crosstown rival Vodacom in terms of subscriber numbers.
Vodacom, controlled by Vodafone Group, is seeking antitrust approval to acquire broadband company Neotel to push its internet offering to small and medium-sized businesses.
MTN is Africa’s biggest wireless company with more than 155 million mobile-phone customers on the continent, and is valued at R377bn ($31.8 billion).
“Telkom is engaging in discussions with a number of industry players to consider how we, as an industry, could operate more efficiently,” spokesperson Jacqui O’Sullivan said by text message.
“As a JSE listed company, we are bound by all relevant JSE disclosure processes and as such, Telkom would follow all necessary processes, if required.”
MTN spokesman Chris Maroleng declined to comment when called by Bloomberg.
Government assets
MTN shares declined as much as 1.4% and was little changed at R206 as of 10:52 am in Johannesburg. Telkom stock gained 2.6% to R77.97.
After South Africa’s government, Telkom’s biggest investor is state-worker pension fund manager the Public Investment Corporation, which holds an 11.4% stake, according to data compiled by Bloomberg.
The government may sell non-strategic assets including a 13.9% stake in Vodacom as it seeks to raise R20bn to help state utility Eskom fund construction of new power plants amid frequent power cuts because of inadequate supply, people familiar with the matter said earlier this month.
Telkom, which owns South Africa’s fourth-biggest mobile-phone provider as well as the fixed-line network, halted four years of revenue decline in 2014 and its management is trying to cut spending to increase profit. Telkom and MTN have been negotiating a separate network-sharing agreement for almost a year.