Telkom SA SOC Ltd shares extended their slump in Johannesburg after its acquisition target, Cell C Pty Ltd, agreed to an extended roaming deal with rival MTN Group Ltd.
Telkom stock has sunk to its lowest in almost a year and is down 17% in the past four days. The company said Nov. 15 it was in talks to buy Cell C and combine South Africa’s third and fourth-largest mobile-phone companies.
Monday’s MTN-Cell C news “reduces visibility on Telkom’s offer,” Citigroup Inc analysts including Dilya Ibragimova wrote in a note.
“The timing of the announcement may signal that Cell C may not be entirely happy with the terms of Telkom’s offer,” the Citi analysts wrote.
A consolidation in the South African market from four to three players is not Citi’s base case, they wrote.
The news “definitely makes the potential acquisition by Telkom much more complicated as it further entrenches MTN’s reach over the Cell C user base, and forces Telkom to potentially pay a higher future price should there be an acquisition of Cell C, which is already a concern in the market as Telkom may not have the balance sheet capacity to take on the acquisition,” Lester Davids, an analyst at Johannesburg-based Unum Capital, said by email.
Telkom dropped 2.1% Monday to the lowest since Nov. 26, 2018. Cell C’s 45% shareholder Blue Label Telecoms Ltd jumped 8%. MTN fell 0.3%, while cross-town rival Vodacom Group Ltd lost 1.5%.