• South African data provider rain has sent a proposal to be bought by rival Telkom.
• Telkom itself is in talks to be acquired by much larger rival MTN.
• MTN cautioned that its acquisition of Telkom could be affected by any future mergers outside of this deal.

On Friday 30th September, data network provider rain sent a non-binding proposal to the partly government-owned Telkom detailing a plan for the telco to purchase rain in exchange for new shares. This drove the South African telecom space into a will-they-won’t-they between some of the largest companies in the country, if not on the continent.

This proposal marked rain’s second attempt to be bought by Telkom. It made an initial proposal to the company in August 2022, but the South African Takeover Regulation Panel (TRP) vetoed the possible merger, deeming it, at the time, ‘unlawful.’

Meanwhile, Telkom has been in talks with MTN, the largest telecom company in Africa and the second-most important telco in South Africa (after Vodacom), to be purchased itself. Currently, Telkom is expecting a final offer from MTN and has given the big yellow provider two months from September to ante up, according to Reuters.

Telkom is right in the middle

About the rain merger, Telkom said that its board was evaluating the proposal but was not yet in a position to express a view. What Telkom has expressed, according to ITWeb, is an assurance to MTN that its proposal is still under consideration.

“The MTN proposal is still under consideration by both parties,” Telkom told investors in a statement.

“The MTN proposal, if concluded, may have a material effect on the price of the company’s securities. Accordingly, shareholders are advised to continue to exercise caution when dealing in the company’s securities until a further announcement is made,” it said.

MTN, in response to news of rain’s own proposition, cautioned that the Telkom-MTN deal could be affected by any future outside mergers. The group said that it would make a further announcement setting out its position with regard to the future of the transaction.

A Russian nesting doll situation

Rain’s proposal complicates the situation for Telkom and MTN. Outside of timing delays for the MTN deal posed by any mergers between rain and Telkom, MTN has not made any comments on whether it is interested in Telkom with rain attached.

Rain theorises that if it merges with Telkom, the merged entity could become South Africa’s third largest telecom company with a combined market share of around 17 million subscribers (including rain’s below 2 million customers).

This would also mean that MTN would have to fork out more to purchase Telkom. This is why MTN is being hesitant about the possible merger between Telkom and rain and will likely continue to be negative about that potential deal.

MTN reportedly has 35 million customers in South Africa, while top telco Vodacom manages a market share of 45 million subscribers.

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