- On the issue of the proposed merger between Telkom Kenya and Airtel Kenya, we are learning a gripping lesson about the politics of mergers and acquisitions in the country.
- Or is it a lesson in opposition of mergers and acquisitions in sectors that the local political elite deem to be security- sensitive.
- If I were an investor with an M&A target in the telecommunications sector, the first thing I would do is to conduct a thorough political risk due diligence on the proposed transaction.
On the issue of the proposed merger between Telkom Kenya and Airtel Kenya, we are learning a gripping lesson about the politics of mergers and acquisitions in the country.
Or is it a lesson in opposition of mergers and acquisitions in sectors that the local political elite deem to be security- sensitive. If I were an investor with an M&A target in the telecommunications sector, the first thing I would do is to conduct a thorough political risk due diligence on the proposed transaction.
The reason the telecommunications sector in this country has oligopolised in the manner it has done has nothing to do with conduct of competition policy. It is politics, stupid.
Last week, the Competition Tribunal- the entity where investors who don’t agree with the decision of the Competition Authority(CAK) are allowed to complain, set aside some of the conditions that the CAK had imposed and which had the effect of making the proposed merger of Telkom Kenya and Airtel untenable.
The CAK had ruled that the deal could only go through on condition that the parties sign ed that they would not engage in any M&A transactions for the next five years.
The regulator wanted to tie the hands of the two investors and to stop them from using the merger as a stepping stone to speculation or other financial engineering deals. Even more significantly, CAK had introduced a condition prohibiting Telkom Kenya and Airtel from selling frequency spectrum licences.
Let us wait and see if the rulings by the Competition Tribunal will bring a stop to what has been an endless cloak and dagger game between the investors and the government. There was a time when the merger transaction could not go on because the Ethics and Anti-Corruption Commission (EACC) demanded to conduct an investigation into the series of transactions that led to the government shares in Telkom Kenya being diluted.
Weeks later, the word out was that preliminary investigations by EACC had concluded that Telkom Kenya and Airtel were private companies and therefore the merger the two companies were contemplating needed to be treated as ‘a commercial transaction agreed upon by private entities’. The understanding at that point was that EACC had cleared the transaction. A few days later, EACC director of legal services David Too changed the tune. He told a parliamentary committee that the EACC had not approved the merger and had only issued an advisory to responsible entities to protect the interests of the government in the transaction.
I recently came across the actual letter the EACC wrote on the issue. It was basically that since its preliminary investigations had determined that there was no corruption in what it had investigated, it had nothing else to do with the transactions.
The cloak and dagger game did not end. The Office of the Attorney-General has been a thorn in the flesh. The AG demanded both a full financial due diligence on Airtel and a comprehensive valuation of both Telkom and Airtel. He demanded that both the National Treasury and ICT ministry must confirm in writing that there was value for money for the government in the whole transaction. We don’t have a strong and independent competitions regulator. Indeed, the governance regime of CAK allows the National Treasury a great deal of power and influence on its decisions. Indeed, its chief executive and the whole board are appointees of the government.
The other key player in the sector, namely the Communications Authority, is not famous for making strong enforcement decisions. It is mostly in the news whenever the political elite is viciously engaged in fights to influence appointment of its directors.
Still, I think the strongest political opposition to the proposed Telkom Kenya and Airtel merger is the segment of the political elite who have chosen to look at the transactions in national security terms.
I recently came across correspondence that reveal that a meeting of the National Security Advisory Committee that met on October 28 last year to discuss security implications of the merger. It considered the merger as’ portending adverse implications on the government’s national security communications infrastructure’.
This is a study on divergent political reactions to inflows of FDI in Kenya. It tells you that mergers and acquisition transactions in the telecommunications sector face a very hostile political environment when the elite insist on treating security implications as the pre-eminent consideration.