MTN in gold rush

MTN has announced its multibillion-rand black economic empowerment deal is set to unwind in the first half of next year. However, the company has not announced the structure or value of the transaction, and current shareholders will want to know the dilution the new deal will bring.

According to a report released by MTN, the company has also established a public offer that will be open to black South Africans "in order to broaden participation in its empowerment initiatives".

The deal will only affect the South African operation, around 29% of the company's overall value relating to EBITDA.

Cyril Ramaphosa, MTN chairman, says: "The MTN Group as a South African-based multinational telecommunications company listed on the JSE has been and remains committed to the principles of BEE. We believe these proposals are important for the long-term progress of MTN and will facilitate sustained and meaningful BEE participation in the company."

The deal involves the unwinding of Alpine Trust (AT) created Newshelf, which was established independently of MTN in 2002, when Transnet sold shares to the company at an average price of R13.90. It was designed to end this month. Essentially, MTN management used it to buy a stake in the company. The unwinding not only negates the debt of the management, but provides a windfall for them.

The top 2 400 employees participate in Newshelf, including MTN Group CEO Phuthuma Nhleko; COO, Sifiso Dabwenga; and former MTN director Irene Charnley, among others. Newshelf owns 13.1% of MTN, according to its SENS announcement on Monday.

"A dividend of MTN shares will be declared to unwind to the AT beneficiaries on 22 December this year. The AT holds ordinary MTN shares on behalf of a company called Newshelf 664. The stake is valued at R24.4 billion," said the company in its statement.

Irnest Kaplan, MD of Kaplan Equity Analysts, says: "MTN has not given any details of the new BEE deal yet. They will over the next month or two, and shareholders will want to have more details."

He says shareholders will be concerned about the cost and the structure, but most importantly, what dilution will be on the cards for the existing shareholders. "What we don't know are the mechanics of the deal, how much of the shares will be made available and the price of those shares."

Broadly speaking, Kaplan says, it was a good foresight on behalf of MTN because in 2003, MTN's management formed the Newshelf structure, together with AT, and five years later, the share price has gone up.

"They are now reaping the rewards."

He says they borrowed money from the banks and now they have to pay back the loan to the banks, with interest. "This is the largest BEE deal that MTN has ever done at this magnitude."

Richard Hurst, analyst from the IDC, believes the deal makes MTN ideally positioned to move into the emerging market: "MTN has always been leading the charge in BEE. The deal hopes to streamline the way MTN handles their BEE compliance. It will be a positive strategy to allow all people to participate with the company.

"Eligible employees of MTN and black South African non-executive directors of MTN will also be invited to participate in the BEE transaction," explains the company's statement regarding the public offer.

The company has signed a memorandum of understanding (MOU) with the Public Investment Corporation (PIC) that will dictate its place in the deal and oversee the unbundling. The company also intends to raise financing to the tune of 0.75% of MTN's market capitalisation.

MTN expects that the BEE transaction will comprise between 5% and 6% of MTN's issued ordinary shared capital. In terms of the memorandum of agreement, the PIC will make available from its equity portfolio of up to 6% of MTN's ordinary shared capital for the BEE transaction. This equates to 25% to 30% of MTN's South African operations.

The MOU also stipulates that MTN will acquire Newshelf for a nominal value. The company will also settle the debt obligations, forking out R400 million in cash and issuing around 213.9 million shares - 11.5% of the company's issued share capital.

MTN was not available to provide any insight into the deal at the time of going to press.