Telkom Kenya, Airtel hang up on merger citing approval delays

Plans for the merger between Telkom Kenya and Bharti Airtel's Kenyan unit that would have resulted in a combined 17.3 million subscribers and 3,200 base stations have collapsed after both telcos pulled out.

In a statement on Wednesday, Telkom said it is no longer pursuing the proposed joint venture with Airtel, citing delays in getting the necessary approvals, for the process which began in February 2019, required to complete the transaction.

“After carefully reviewing the available options, Telkom has opted to adopt an alternative strategic direction and will no longer be pursuing the proposed joint venture transaction. This decision has been mutually agreed with Airtel Networks Kenya Limited,” said Telkom Kenya CEO Mugo Kibati.

The telco has also recalled a redundancy notice it had issued on July 31 last year adding that its earlier plans to send home workers will no longer apply.

Telkom last August announced plans to lay off 575 workers, equivalent to about 72 percent of its workforce, ahead of the proposed merger with Airtel, a move that would have left it with a skeleton staff of only about 225.

Airtel, in its statement, said the merger was subject to the satisfaction of various conditions precedent, including regulatory approvals.

“Despite Airtel Africa Plc and Telkom's respective endeavours to reach a successful closure, the transaction has gone through a very lengthy process which has led the parties to reconsider their stance. Accordingly, Airtel Africa Plc and Telkom have decided to no longer pursue completion of the transaction,” said Raghunath Mandava, Airtel Africa CEO and MD.

Hurdles

The merger between the two telcos was aimed at creating a unit to challenge Safaricom’s #ticker:SCOM market dominance but has been faced a myriad of hurdles.

Second-placed Airtel accounted for 26.6 percent of Kenyan mobile telecom subscribers as at March, followed by Telkom with 5.8 percent market share.

“Kenya is a large and growing market and we remain committed to build a growing profitable business. We currently serve more than 14 million Kenyan customers, a number that is growing month-on-month,” said Mr Mandava.

“Our strategy to focus on winning more customers, invest in a best in class voice and data network and progressively expand our mobile money business, will continue to build on these results in order to deliver against the opportunities the Kenyan market has to offer.”

The Competition Authority of Kenya (CAK) had approved the planned merger, but blocked any share sale deal over the next five years as part of its conditions for giving the green light. The restriction prompted the two telcos to appeal against the tough conditions attached to their merger, which they won after they were allowed to sell up to 40 percent of their merged business.

However, the telcos were yet to get approval from the National Treasury. Telkom is majority-owned (60 percent) by UK-based private equity firm Helios Investment Partners and 40 percent by the Kenyan government.

Safaricom had also demanded to paid Sh906.6 million and Sh390.7 million by Telkom and Airtel respectively, owed for interconnection, co-location and fibre services ahead of the merger.