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MTN deal with Cell C knocks Telkom’s shares

The deal puts a dampener on Telkom’s proposed takeover of Cell C.
Telkom shares are down more than 4% after the announcement of the MTN-Cell C deal. Image: Waldo Swiegers/Bloomberg

South Africa’s MTN Group has signed an expanded roaming agreement with the country’s third-biggest carrier Cell C, pushing shares in its owner up while dragging those of rival Telkom down.

The deal puts a dampener on Telkom’s proposed takeover of Cell C, which is majority owned by Blue Label Telecoms and is struggling under the weight of hefty debts. The buyout bid was announced on Friday.

Read: MTN, Cell C deal ‘meets regulatory requirements’

It will see an existing agreement between MTN and Cell C, which gives the struggling carrier access to MTN’s network in some areas of the country, expanded nationwide.

The MTN agreement strengthens Cell C’s position after months of efforts to sort out its finances and questions over how it will survive. Blue Label, its owner, has written its holding in the carrier down to zero.

Cell C CEO Douglas Craigie Stevenson said in a statement the MTN agreement will help Cell C to manage its network capacity requirements in a more cost-effective manner. The deal spares Cell C having to spend large sums to ensure national coverage.

“The roaming agreement is transformative for Cell C,” Stevenson said.

Telkom shares were down 3.36% by 1302 GMT, recovering some ground after losing more than 5% following the news. Meanwhile, Blue Label shares were up 6.27% and MTN shares were down 0.48%

In a statement, Telkom said it expects the roaming agreement and its terms will have been considered in the context of Cell C’s discussions with Telkom.

For MTN, meanwhile, the deal means the opportunity to earn more revenue from Cell C, which helped push its enterprise and wholesale revenue up 8.4% to R13.4 billion in the 2018 financial year.

In the six months to June 30, however, MTN opted not to recognise revenue amounting to R393 million from the Cell C deal due to the company’s financial problems.

“This [the agreement] is aligned to MTN’s strategy to further develop the group’s wholesale business and will allow both MTN and Cell C to harness greater efficiencies… while supporting a more sustainable and competitive industry,” MTN said in its statement. 

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