How Treasury derailed Airtel, Telkom Kenya merger plans

The merger between Airtel and Telkom Kenya collapsed after Parliament warned the National Treasury against approving the deal, The EastAfrican has learned.

The refusal by Treasury frustrated Airtel into calling off the negotiations, which were already at an advanced stage.

The government, through Treasury, controls a 40 per cent stake in  Telkom Kenya.

“Telkom is a classic example of what should not happen in a civilised society because the company has been the subject of dubious changes in shareholding. In the merger with Airtel, parliament opposed it in totality and in our report we told Treasury not to approve the transaction,’ said Moitalel ole Kenta, Narok North member of parliament who chaired a committee that investigated the proposed merger.

Treasury Cabinet Secretary Ukur Yatani did not respond to our queries on the matter. His ICT counterpart, Joe Mucheru, also declined to reveal why the talks collapsed.

“Ours is policy formulation to ensure we have a competitive market that allows companies to decide what they want,” he said.

The two companies on Wednesday separately announced they had reached mutual consent to call off the proposed merger, attributing the decision to fatigue from lengthy process, challenges in getting all the necessary approvals and the changing market dynamics brought about by the Covid-19 pandemic.

The deal had earlier received the greenlight from the Communications Authority (CA) albeit with conditions, among them retaining all workers within two years and refraining from selling the firm for at least five years. The Competitions Authority of Kenya (CAK) had also approved the deal.

The two companies had announced the proposed deal in February last year, which was designed to merge their mobile, enterprise and carrier businesses to create what was to be a formidable company known as Airtel-Telkom to compete with Safaricom. The deal was to close last December.

However, investigations by Parliament raised questions on the sale of Telkom shares to France Telkom that later sold its stakes to private equity firm Helios Investment Partners, concluding the changes in shareholding was shrouded with underhand dealings with Kenyan taxpayers being biggest losers.

Helios, through its investment vehicle Jamhuri Holdings currently controls 60 per cent shareholding in Telkom Kenya.

Sell of share

France Telkom bought a majority share in Telkom Kenya when it was privatised in 2007, a deal that has been criticised by Parliament’s Public Investments Committee (PIC) on the basis that the company was sold for a song and that the transaction was shrouded with illegalities.

“There is a clear lack of clarity about the market valuation of Telkom Kenya Ltd even at the privatisation stage. The basis of the value of Ksh50.9 billion ($467.4 million) that was used at the privatisation is not known and has never been made public,” said PIC in its Special Report on the privatisation, recapitalisation and restructuring of the company’s balance sheet seen by The EastAfrican.

The Telkom Airtel merger encountered more troubles after the Ethics and Anti-Corruption Commission (EACC) opened its own independent probe, with more obstacles coming from hundreds of employees who were set to be sacked if the deal was finalised.

Telkom intended to sack 575 of its staff on account of redundancy, a decision that has now been withdrawn following the collapse of the merger.

“The notice of redundancy issued by the company on July 31, 2019 is withdrawn and the earlier envisaged redundancies no longer apply,” said Mugo Kibati, Telkom chief executive.

Both Telkom Kenya and Airtel Kenya, a subsidiary of India’s Bharti Airtel, have been struggling to loosen the tight grip that Safaricom has on the local telecoms industry and intended to use the new entity to compete for a bigger market share.

CA Sector Statistics Report for the first quarter of this year showed that Safaricom continues to dominate the market with its mobile subscriptions market share standing at 64.8 per cent followed by Airtel at 26.6 per cent and Telkom with 5.8 per cent.

Safaricom maintained leadership in mobile data/Internet with a 68.8 per cent market share followed by Airtel with 25.8 per cent and Telkom with five per cent despite the fact that Telkom controls the largest broadband infrastructure in the form of the National Optic Fibre Backbone.

The collapse of the merger has forced the two companies to go back to the drawing board, with Airtel Kenya saying it intends to focus on growing its customer base, investing in voice and data network and progressively expand its mobile money business in a market where it currently serves more than 14 million customers.

“Kenya is a large and growing market and we remain committed to build a growing profitable business,” said Raghunath Mandava, Airtel Africa chief executive.

In the financial year ended March 2020, Airtel Africa saw its revenues from the East Africa operation increase by nine per cent to $1.37 billion from $1.1 billion last year.

Telkom Kenya said it plans to capitalise on the digital transformation opportunities brought about by Covid-19 that have seen demand for data and broadband increase significantly as more people work from home.

“The transformation dynamic also presents Telkom with a strategic advantage to better position our infrastructure asset base and services to support this digitisation and, in the mid to long term, bridge the consumer digital divide connecting the unconnected by way of cutting-edge technologies such as Loon,” noted Mr Kibati.

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