MTN beds down Investcom deal

Johannesburg, 31 Aug 2006

MTN sees between $300 million and $400 million in synergy between it and the latest addition to its stable, Investcom.

MTN, which acquired the Beirut-based company for R33.5 billion, made this statement during its results presentation yesterday.

CEO Phuthuma Nhleko said a team was already working on integrating the companies and he hopes key aspects of both businesses would be integrated by early December. A few other aspects would take up to five months more, he said.

While unable to provide exact figures regarding costs that could be saved, he said the "low-hanging fruit" amounted to between $300 million and $400 million.

The acquisition of Investcom adds 6.1 million subscribers in 10 countries to MTN`s portfolio, taking its total subscriber base to 31.5 million.

The company expects to report fully consolidated results during its next financial year. The mobile operator`s acquisition of the Middle East firm became consolidated on 4 July.

Investcom, at the end of the six months to June, saw its subscriber base up 26%, to 6.14 million, from December 2005. Revenue was up 52%, to $600 million, from June 2005. Its earnings before interest, taxes, depreciation and amortisation (EBITDA) margin was at 42.4%.

MTN is hopeful Investcom will aid it in its aim to reach an EBITDA margin of 45%. Its margin at the end of the six-month period was 42.9%.

Longer pay-off

However, not all market commentators are convinced Investcom will aid MTN in reaching this goal.

One analyst, who asked not to be named, said his firm`s forecasts are more bearish. He points to the fact that Investcom has start-up operations, which will take some time before bearing fruit.

He says he may be underestimating the benefits that can be gleaned through synergy, but expects the investment to have a longer pay-off time than MTN believes.

The analyst adds that with revenue-sharing agreements in place in Iran and Yemen, the company may find these investments do not yield the anticipated results and become a cash drain.

Another analyst - who also asked not to be named - suggests Investcom`s new operations would break even quickly. He says SIM connection fees would contribute to the bottom line from the start.

In addition, he believes the acquisition would aid the company`s bottom line, as Investcom`s 43% margin would dilute SA`s weaker margin, making the entire group more profitable.