What is MTN’s next call?

2009-10-03 13:17

THE failure by MTN and India’s Bharti Airtel to wrap up a blockbuster $24-billion (R182-billion) tie-up may force the South African company to look at less grand options.

Had the transaction been successful, it would have represented a crowning moment for serial and outstanding deal-maker Phuthuma Nhleko, the chief executive of MTN.

Nhleko has already pushed the company from within the borders of South Africa across Africa and into Iran. He was determined to go ahead with the Bharti merger despite the risk of the South African company falling under the operational control of the Indians.

Bewildered local investors argue that the exposure to the 1.2-billion- strong Indian consumer market would be worth more in the long run than holding on to the controlling shareholding in MTN, whose main exposure lies in the smaller African consumer market.

For now MTN may be forced to ­focus on its current operations or consider smaller acquisitions.

“There are a few countries that MTN may want to look at. If the intention is to go to that part of the world (South Asia), MTN must try Pakistan because it is also a sizeable market,” said Khulekani Dlamini, a portfolio manager at Afena Capital.

“If this does not work, MTN must continue running the company the way it has been doing because there are a lot of opportunities that have not been tapped where it operates.”

Pakistan has a population of 181 million people and is largely an unsaturated market.

The drop in the cost of handsets has resulted in subscriber numbers growing at an ­impressive rate.

News of the collapse of the deal this week was met with cheers by local institutional investors, who were unhappy with the price offered for their MTN shares.

They believe that MTN is better off sweating its current operations, which span 21 countries from Africa to the Middle East.

“There is still growth in the markets that MTN is operating in. People were against the price that was being proposed,” said Sisa Rafuza, a portfolio manager at Metropolitan Asset Managers.

For the past six months, the cellphone network operators had been working on a deal in which Bharti would acquire 49% of MTN and MTN would buy 36% of Bharti. Had the deal materialised, it would have created an emerging markets telecoms giant with a combined revenue of around $20?billion and more than 200 million subscribers.

From the day MTN announced it had gone back to the negotiating ­table with Bharti it was clear that the complex deal would face enormous hurdles.

Politicians on both sides of the ­Indian Ocean raised concerns about the companies losing their national identities, pushing aside the normal rhetoric of south-south co-operation and nailing their protectionist instincts to the mast.

But Bharti blamed the South African government for the collapse.

“The structure needed approval from the government of South Africa, which has expressed its inability to accept it in the current form.

“We hope the South African government will review its position in the future and allow both companies an opportunity to re-engage,” Bharti said in a statement.

But a senior state official said he did not understand this because the treasury officials dispatched to India a week ago never met with Bharti but with ­Indian regulators.

“Bharti never made an application for the approval of the transaction with us because it is not a South African company,” the official said.

There were media reports that the South African government had insisted the merged entity dual-list in Johannesburg and India, but dual-listing is not allowed in India.

This implies that the South African government was worried about MTN being delisted from the JSE.

The treasury official said governments the world over always wanted to keep their national jewels listed on their home stock markets. It was more appealing to foreign investors as there was a wider choice of stock to choose from.

“MTN is the fifth-largest company on the JSE by market capitalisation. If MTN were to be delisted the JSE would lose a huge chunk of its value. Governments want to ensure that there is a lot of choice for investors and they can quickly get out when they want to,” the official said.

Bharti and MTN had flirted before but the talks failed after both parties disagreed on who was going to control the merger. But the deal mooted left no doubt that Bharti was going to be the stronger shareholder.

“Bharti was going to be the controlling shareholder because it was going to have more of MTN than MTN had of it,” Rafuza said.

A corporate financier who did not want to be named said the government was concerned about the capital outflows from South Africa post-transaction, although the initial purchase of MTN would have resulted in substantial capital inflows that would have shored up the country’s balance of payments.

“In the long run it was going to be easier for the Indians to repatriate dividends back to India, but it was going to be difficult for the South Africans to get dividends out of India,” he said.


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