Uncertain future for Telkom after Airtel merger collapse

Uncertain future for Telkom after Airtel merger collapse

Telkom Kenya and Airtel Kenya last week announced collapse of their planned merger, throwing the future of Telkom and its private equity backers Helios Partners in limbo. This has also left both companies weaker in terms of bottom line and market share than they were last year at the beginning of the merger transactions, giving an edge to market leader Safaricom. Last week, the two companies said they had pulled the plug on the merger owing to regulatory challenges and strategic considerations. “After carefully reviewing available options, Telkom has opted to adopt an alternative strategic direction and will no longer be pursuing the proposed joint venture transaction,” said Telkom Kenya Chief Executive Mugo Kibati in a statement. He said the decision was also influenced by the “challenges experienced in getting all the approvals required to complete the transaction”, a reference to numerous roadblocks that have dogged the deal since last year. Several entities including Safaricom, some former employees, the Ethics and Anti-Corruption Commission (EACC) and the Competition Authority of Kenya (CAK) had raised reservations on the merger, citing various reasons yet to be addressed. In the case of Safaricom – a company that was once a department within Telkom – objected to the merger citing a Sh1 billion unpaid debt. The EACC had sought to freeze the merger owing to questionable transactions between 2012 and 2014 where taxpayers money is believed to have been lost during recapitalisation of the State corporation. French telecoms firm Orange acquired a 51 per cent stake in Telkom in 2007 with the understanding that both entities would inject money into the new entity, Orange Telkom. Reneged on deal Treasury, however, reneged on the deal and in 2014 Orange emerged with 70 per cent shareholding, prompting the investigation and a parliamentary report recommending State intervention. “The government should either renegotiate with the aim of recovering a higher shareholding of at least 35.1 per cent in line with its contribution of Sh2.5 billion and the recapitalisation and restructuring agreement or the Cabinet Secretary, National Treasury, should ensure that the Sh2.5 billion that was paid is refunded together with interest at market rate backdated to January 1, 2013,” said parliament’s Public Investment Committee in the Special Report on Recapitalisation and Balance Sheet Restructuring of Telkom Kenya. In November last year, Mr Kibati told The Standard that the merger with Airtel had cleared all regulatory thresholds and that […]

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