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Kenya: Airtel-Telkom merger collapses after Treasury pulls plug

By Morris Kiruga, in Nairobi
Posted on Tuesday, 18 August 2020 13:08

An employee of Telkom Kenya stands outside the company's shop near the company's headquarters in Nairobi, Kenya, July 27, 2018. REUTERS/Baz Ratner/File Photo

A merger process that would have seen Airtel and Telkom, Kenya’s second and third largest telecoms companies respectively, merge into a single company collapsed this August due to delays in the approval process, the companies said in separate statements.

The telcos announced the proposed merger in February 2019, which would have seen them combine to build a formidable competitor to the country’s biggest and most profitable telco, Safaricom. In an August 5th statement announcing the end of the deal, Telkom CEO Mugo Kibati cited “challenges experienced in getting all the approvals required to complete the transaction.”

READ MORE Airtel Africa lists in Nigeria and turns to Africa for growth

In May, the deal won several concessions from a list of conditions lay down by the country’s competition authority.

  • For example, the merged entity, Airtel-Telkom, would not have been allowed to sell itself for the first five years. It would also have had to retain a set number of employees, and surrender spectrum resources currently owned by Telkom back to the state.

In late 2019, the country’s anti-corruption agency asked the competition authority to suspend the deal, as it was still investigating transactions around Telkom Kenya’s ownership.

  • In 2015, the private equity firm Helios Investment Partners bought out France Telecom’s majority share in the telco.

In September, Safaricom also raised objections to the deal including a combined interconnection debt of KES 1.2 billion, and a review of anti-competition measures instituted in 2016 which denied the telco additional capacity.

READ MORE Kenya: M-Pesa and mobile data boost Safaricom’s 2019 growth

The multiple hurdles delayed the deal, which was initially set to end by December 2019, but multiple reports indicate that the last one, approval from the country’s Treasury, was the one that ended the deal.

The state is a minority shareholder in Telkom Kenya, which brought the deal under the purview of the country’s legislature.

Both the legislature and the anti-graft agency have pointed out potential valuation and process issues in the two transactions that saw Telkom partially privatised in 2007, and then the majority stake transferred to a new entity in 2015.

What next?

Both companies have since announced new growth plans, with Airtel Kenya launching Airtel TV, an entertainment streaming app, shortly after the deal was cancelled.

Telkom, however, will first have to undo many of the things it had in place for the merger.

It had, for example, scaled down operations, which saw it lose 0.4 % of its market share between December 2019 and March 2020.

In April, the communication authority quarterly report indicated that Telkom had shut down nearly 90 percent of its mobile money agent network.

The mobile money product, T-Kash, was launched in March 2018 and has struggled to gain a foothold in a segment where Safaricom’s MPESA has a 98.8% market share.

 

 

 

 

 

 

 

 

18 months after they announced a merger, Kenya’s second and third largest telecoms companies announced an end to the deal on August 5th.

 

In separate statements, the companies…

 

 

Telkom CEO Mugo Kibati

 

A report by The East African disclosed that the deal collapsed after Parliament warned the National Treasury against approving the deal.

 

 

Kenya’s Treasury controls a minority stake in Telkom Kenya. https://www.theeastafrican.co.ke/tea/business/how-treasury-derailed-airtel-telkom-kenya-merger-plans–1916502

 

“The deal had earlier received the greenlight from the Communications Authority (CA) albeit with conditions, among them retaining all workers within two years and refraining from selling the firm for at least five years. The Competitions Authority of Kenya (CAK) had also approved the deal.”

 

 

EACC hurdle https://www.businessdailyafrica.com/news/EACC-hurdle-on-Telkom-Airtel-merger/539546-5341434-2xa6hrz/index.html

 

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