MTN, New Clicks deal falls through

Johannesburg, 28 Aug 2009

MTN and New Clicks have walked away from a R15.8 million deal that would have seen the mobile operator take over 17 Musica stores.

Speaking at MTN's interim results presentation yesterday, group CEO Phuthuma Nhleko explained the companies were unable to finalise the deal, because of store lease issues.

“It would not have been at the scale we were hoping for, and we decided to collapse the deal,” he added.

MTN has been on an aggressive campaign to expand its local channel and distribution, and the Musica deal was to form part of its strategy to grow its profile. All 17 of the stores were considered to be in “prime locations”, and would have been a coup for MTN.

The original agreement would also have seen MTN gain certain store-related service contracts and all the permanent staff in those stores. However, MTN SA MD Tim Lowry says several shopping centre owners had decided against transferring the lease from New Clicks to MTN.

The deal was always subject to the agreement with mall owners, and Lowry says he is disappointed the deal didn't go through.

Despite the trouble, he says the folding of the deal was amicable, and MTN and New Clicks maintain a good relationship.

Consolidating

Ralph Lorenz, Musica MD, says the biggest issue was with landlords not wanting too many cell shops in malls.

Musica already partners with Virgin Mobile, which has a mini store inside 31 Musica outlets. Lorenz says there are no plans to enter into a similar relationship with MTN. Now that the deal has fallen through, the company will look at each outlet on a store-by-store basis and either keep them, or close them depending on its strategy and the store's profitability, notes Lorenz.

When the deal was announced in March, New Clicks CEO David Kneale said it would enable Musica to make the best use of its stores so its entertainment offering could reach middle- and upper-income customers. “Musica will consolidate stores in some shopping centres where there are two stores, or in areas where two stores are trading in close proximity, as well as reducing space in some Musica outlets,” he explained.

MTN's focus on distribution will have to now turn to the eight stores it gains from the iTalk deal, which the company controversially acquired earlier this year. iTalk stores will be fully integrated into MTN and will operate as MTN-branded outlets.

The newly-acquired company has three outlets in Gauteng, one in Cape Town and five in Durban, all excluding the regional head offices.