Algerian finance minister Karim Djoudi has confirmed that the country's government is interested in buying Djezzy, the jewel in the pending deal between MTN and Egyptian operator Orascom.
Less than a week after MTN and Orascom announced they were in discussions, officials in Algeria's telecommunications ministry have formally opposed the possible $10 billion deal. They explained that legally government has the right of refusal on 51% of the shares and can buy them up.
“The government is opposed to the planned deal between MTN and Orascom with regard to the company OTA (Orascom Telecom Algerie). Therefore, any transaction concerning OTA will be null and could lead to the withdrawal of the telephone licence granted to the company,” said the ministry in a statement to an Algerian press service last week.
Orascom holds a 49.6% majority stake in Djezzy, the Algerian operation, which services just under 15 million subscribers.
The good and the bad
Djezzy is Orascom's double-edged sword. It is Orascom's top performer in its stable of telecoms operations, which exploded to a 67% market share in the country since its commercial opening in 2002. The company was the first mobile business to be granted a licence to provide services, followed by Kuwait's Wataniya Telecom.
However, its relationship with Algiers has not been a sunny one, specifically with a dispute around a tax bill, which involves a group of companies in the Orascom family and the Algerian government.
Analysts had hoped the deal would still go through, despite the conflict between the countries; however, sentiment is that it is now less likely.
MTN did not comment on what the Algerian government standoff means for the entire deal.
Why stop the sale?
The tepid relationship between the countries could mean the Algerian government may make a play for a bigger buck. Chris Gilmour, Absa Investment analyst, says it may well be possible that Algeria could buy up Djezzy, only to sell it later to MTN at a higher price.
“Governments tend not to run operations like this, as well as private businesses. MTN already has a magnificent track record, and maybe the Algerian government is just trying to up the ante,” he notes.
However, he says it will entirely depend on how desperate MTN is to get its hands on the operation in Algeria.
Not fighting regulation
Without Djezzy in the Orascom stable, MTN is likely to walk away from the deal with the Egyptian operator.
Gilmour says Algeria would have been MTN's foothold in North Africa, bridging the gap between its other African operations and its work in Iran. He adds that MTN has never been hot on contesting regulatory issues in its acquisitive ventures, which was the reason the Bharti deal fell through last year.
“It does feel like MTN is not doing its homework on these deals though. Surely MTN's advisors knew there was a possibility that there would be regulatory troubles in Algeria. Perhaps the company is not looking at these deals properly,” he adds.
While MTN has not confirmed it, it is reportedly looking to buy Orascom's units in Algeria, Zimbabwe, Egypt and Tunisia, and will likely get Central African Republic, Burundi and Namibia in the deal.
Orascom also operates in North Korea, Bangladesh and Pakistan. Zimbabwe has also indicated it is not happy for MTN to take up more than 20% of the business in that country.
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