MTN in play?

MTN could become a takeover target within the next two years, as it has attractive operations on the African continent, analysts say.

Last year, MTN was involved in a failed merger bid between it and Bharti Airtel, which collapsed at the last minute in September.

MTN said legal and regulatory issues stopped the $24 billion deal from going ahead. The negotiations between MTN and Bharti, which began in May 2009, could have resulted in the world's third-largest mobile operator, with more than 200 million subscribers.

However, the company still remains an attractive takeover target. MTN is Africa's largest cellphone operator and has almost 80 million subscribers on the continent out of its 108 million subscriber base.

Analysts have long considered Africa as the future growth path for many telecoms businesses, with much room for penetration. Many industry watchers had expected MTN to become the great consolidator, buying up subscribers across the continent.

“It's pretty obvious that MTN is a fantastic asset in terms of its geographic location,” says Irnest Kaplan, MD of Kaplan Equity Analysts. He adds that any operator from a developed country looking to expand its footprint and grow its market share will have MTN on its radar.

Chris Gilmour, Absa Investments analyst, believes a buyout is on the cards, especially in light of the announcement that CEO and president Phuthuma Nhleko will leave by next March, after being at the helm since 2002.

In addition, MTN CFO Rob Nisbet was replaced with Nazir Patel, after Nisbet relinquished his board position at the end of September last year.

Gilmour says this indicates the company is either preparing the way for a new generation of leaders, or is selling out. “When top management start moving on, in my opinion, it speaks volumes.”

However, Gilmour cautions that MTN would come up against government concerns if it were to be bought out. “I think government sees MTN as a national icon.”

He adds that moving it offshore to Dubai would circumvent this issue. “This idea of MTN going to Dubai makes sense.”

Adrian Macartney, Africa transactions advisory leader at Ernst & Young, anticipates that MTN will be involved in a mega deal within the next two years, citing its growth potential and footprint in emerging markets. “There is no more attractive asset in Africa than MTN.”

MTN was launched in 1994 and operates in 21 countries in Africa, Asia and the Middle East.

The group has operations in Afghanistan, Benin, Botswana, Cameroon, Cote d'Ivoire, Cyprus, Ghana, Guinea Bissau, Guinea Republic, Iran, Liberia, Nigeria, the Republic of Congo, Rwanda, South Africa, Sudan, Swaziland, Syria, Uganda, Yemen and Zambia.

However, Macartney says any deal involving MTN would not be a knee-jerk reaction to news that Bharti is bidding to buy out Zain, which would make it a serious competitor to MTN on the continent.

Africa is a fragmented continent, with about 40% of the total number of operators owning less than 1% of the market, says Julia Lamberth, Africa telecoms sector leader at Ernst & Young.

Lamberth says Africa is expected to see merger and acquisition activity this year as companies aim to expand their footprints and add subscriber numbers. She expects that those looking to buy in Africa would come from the Middle East, India and China.

China Mobile, for example, is likely to expand into Africa once it has saturated the Chinese market, Lamberth notes. “We have not seen a tipping point in consolidation yet, and China Mobile would be a tipping point.

“As night turns into day, there has to be consolidation in Africa.”

Spiwe Chireka, ICT industry analyst at Frost & Sullivan, notes it is unlikely MTN will be courted by another big player like Bharti.

She says MTN is considered a South African treasure, and current shareholders, including a government stake, will likely hold onto the asset, rather than allow a foreign takeover. However, Chireka points out that this doesn't discount a possible international partnership.

A tie-up is still likely to come from a smaller player, to avoid power conflict. “If a Vodafone partnership comes around, there will likely be disputes about where the company will be based, and other similar issues.”

According to Chireka, a smaller player will be more flexible in a partnership with MTN. She points to Russian business Altimo Holdings, which is bidding for an equity stake in Zimbabwe's ZamTel.

“From what we understand, the company is looking for an African presence.” Chireka adds that there are several non-traditional telcos looking to expand on the continent and MTN is an ideal partner to do that.

MTN's share was trading at R114.35 this morning, after closing at R115.10 yesterday. It closed at R111.90 on Friday, before the news of Nhleko's resignation hit the market.

Its price-to-earnings ratio of 12.61 is not as expensive as some other companies, such as those in the retail sector; however, it is similar to Vodacom's, which is sitting at 12.63.

MTN declined to comment on its stance as a possible takeover target.