A shopper walks past a Telkom shop at a mall in Johannesburg. Picture: REUTERS/SIPHIEW SEBEKO
A shopper walks past a Telkom shop at a mall in Johannesburg. Picture: REUTERS/SIPHIEW SEBEKO

Struggling SA mobile carrier Cell C is likely to reject a takeover offer from Telkom in favour of a co-operation pact with larger rival MTN Group, according to people familiar with the matter.

Executives of Johannesburg-based Cell C are against a Telkom deal because of uncertainty over how a combination of the companies will affect a roaming agreement with MTN, said the people, asking not to be identified because talks are ongoing. Cell C’s board was due to meet on Wednesday to make a final decision, they said.

“Cell C remains focused on its turnaround strategy, which includes ensuring operational efficiencies, restructuring its balance sheet, implementing a revised network strategy and improving overall liquidity,” the company said in an e-mail.

“Independent financial and legal advisers have been appointed representing the lenders. Constructive discussions on the recapitalisation are under way with them and other stakeholders in respect of various proposals.”

Representatives from Telkom and MTN declined to comment. Telkom announced on Friday it was in early negotiations to buy Cell C and combine SA’s smallest wireless operators to better compete against MTN and Vodacom.

For its part, Cell C signed an agreement last week with MTN to use its larger rival’s network in exchange for additional spectrum. The firm is seeking to cut costs and stem losses as it struggles to make payments on R9bn of debt.  

Following media reports on the conclusion of the agreement suggesting that it does not require any regulatory approval, the Independent Communications Authority of SA (Icasa) said it had requested both operators to provide it all the agreements and associated information on the roaming deal “for review and to assess compliance with the applicable law and regulations”.

Cell C and MTN have informed the regulator about the agreement, Icasa said. In a statement, Icasa CEO Willington Ngwepe said “the question of whether any agreement that pertains to a regulated service or use of a licensed resource (such as spectrum) requires approval or triggers regulatory compliance requirements is one which the authority can never leave to the parties alone to determine”.

Icasa said letters had been sent to the parties and “we await their response in terms of their clarification. We will then be able to determine whether the arrangement meets regulatory compliance or not.”

In addition to the MTN roaming agreement, and takeover offer from Telkom, Cell C is also considering a potential deal with local investment firm Buffett Group that would secure additional funding. While those talks are yet to be concluded, Cell C executives favour a transaction with Buffett Group, together with the benefits of the roaming agreement, over a Telkom offer, the people said.

Lenders including Nedbank might still be able to use their sway with the debt they are owed to push Cell C to accept the Telkom takeover, the people said. A recapitalisation of Cell C in 2016 failed to resolve the company’s woes, they said.

Bloomberg, with Mudiwa Gavaza