CAK attack: regulator to scrutinise yu sale; is Safaricom getting cold feet?

26 Mar 2014

The planned ‘carve-up’ of Essar Telecom Kenya (yu) by Safaricom and Airtel Kenya will not be given automatic approval, according to the Communications Authority of Kenya (CAK), which has indicated it intends to assess the full impact of the sale. Business Daily Africa quotes CAK director-general Francis Wangusi as commenting: ‘The approval is not going to be as easy or automatic as some people may think. We are going to look at various issues such as the impact of this intended buyout to the competition in the sector, the fate of the employees and the subscribers, and also how the business is going to be liquidated, and here the focus will be on the frequency spectrum. The reason the commission and the government licensed multiple players in the sector was to increase competition. However, this buyout now presents a challenge of maintaining the kind of competition we have had in the sector because if it goes through it will reduce the number of the players in the market.’

The lack of a clear-cut resolution may yet prevent the deal from proceeding, Bloomberg reports, citing an interview with Safaricom’s corporate affairs director Nzioka Waita. He told the news agency: ‘For all concerned, this transaction was very time-bound. We are giving very serious consideration to pulling out for the simple reason that the lack of regulatory certainty puts us in a place where the key fundamentals of the transaction have changed.’ yu CEO Madhur Taneja has admitted that the three parties currently have a memorandum of understanding, although they have yet to sign a legally binding agreement. He said: ‘The delay is surely disturbing. Time is of the essence in all such transactions because it sends anxiety to every stakeholder.’

Interestingly, Taneja has confirmed that the sale of Essar’s Kenyan assets has been under discussion for seven months, and prior to agreeing to a deal with Safaricom and Airtel, Essar approached Orange Group, Etisalat, MTN Group and a Vietnamese telecoms company [likely to be Viettel Group] about a possible acquisition.

If the carve-up falls through due to anti-trust concerns, it remains to be seen whether any of those aforementioned players will step into the breach. TeleGeography notes that Orange Group is also keen to exit the Kenyan market, and if a third party sought to acquire both third-placed yu and Orange’s fourth-placed Telkom Kenya unit the authorities would likely encourage such a deal, as it would boost competition, rather than solely benefiting the major players.