Companies

Court clears Telkom, Airtel merger

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Airtel and Telkom lines on sale in Nairobi streets. PHOTO | KANYIRI WAHITO | NMG

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Summary

  • In a judgement, High Court judge Jairus Ngaa said that the purported move by the Ethics and Anti-Corruption Commission (EACC) to recover property already sold or stop those on sale was illegal.
  • The decision clears the way for the merger which Telkom said had stalled because of the EACC investigations, heightening the risk of Airtel walking away from the negotiating table.
  • The court heard that the Communications Authority(CA) and the Competition Authority of Kenya(CAK)had informed Telkom Kenya that they would only approve the merger once the transaction was cleared by EACC.

Telkom Kenya and Airtel have the green light to revive their planned merger after the High Court quashed a letter by the anti-graft agency questioning the sale of the former’s properties during the privatisation period.

In a judgment, High Court judge Jairus Ngaa said that the purported move by the Ethics and Anti-Corruption Commission (EACC) to recover property already sold or stop those on sale was illegal.

The decision clears the way for the merger which Telkom said had stalled because of the EACC investigations, heightening the risk of Airtel walking away from the negotiating table.

The court heard that the Communications Authority (CA) and the Competition Authority of Kenya (CAK) had informed Telkom Kenya that they would only approve the merger once the transaction was cleared by EACC.

“It follows that to the extent that the respondent purported or attempted to recover public property or prohibit its sale through a letter, its decision is ultra vires. In the language of judicial review, its decision can be said to be unlawful because it is tainted by all or either of the grounds of illegality, irrationality and procedural impropriety,” the judge said.

The EACC in a gazette notice last month said investigations established that the process of privatisation of Telkom Kenya was above board and that there was no evidence of impropriety or culpability of the public officials involved in the process.

It, however said it was awaiting a response from the Director of Public Prosecutions (DPP).

Telkom had moved to court seeking to quash a letter by EACC on February 26, last year that sought a list of properties it had sold and recall or suspend any more sales pending conclusion of investigations it was conducting on the company.

According to EACC, there were claims of misappropriation of the company’s assets before the planned merger.

The agency said with 40 per cent government stake in Telkom, EACC has the mandate to protect the public interest particularly in investigating corruption and economic crimes. The court further heard that EACC’s mandate is not limited to public bodies or officers but also extends to any person or organisation.

Telkom said the requirement it recalls recent sales of property and suspend further sales pending the conclusion of the investigations will expose it to significant loss and damage including damages for breach of its obligations under sale agreements concluded with various third parties.

Plans to privatise Telkom started in 2007 when the government disposed of 51 per cent of its shares to Orange E.A. Limited, whose shares were in turn owned by France Telcom.

In 2012, the company recorded an unsatisfactory and impaired financial position and was faced with imminent insolvency. And to avert the situation, the two shareholders resolved to restructure the applicant’s balance sheet.

The exercise involved, among other things, writing off part of the company’s debt, injection of capital by the two shareholders and, adjustment of the government shares to 30 per cent and France telecom shares to 70 per cent on account of each shareholder’s contribution.