MTN Group’s bid to buy out IHS Holdings after selling its Latin American business unit is a strategic shift aimed at curbing escalating lease costs and giving the group greater operational flexibility – a move that could please shareholders, analysts note.
IHS’s board has accepted an offer of $8.50 a share in a transaction that will see MTN Group increase its shareholding to 100% of IHS’s African tower portfolio.
Should the deal be approved by shareholders, MTN will obtain the 75.3% of the cellular tower company it does not already own, valuing IHS at $2.2 billion (R35.2 billion at this morning’s exchange rate of R16.01).
The mobile network operator notes the merger will see it obtain “control over a substantial portion of the group’s [IHS’s] passive mobile infrastructure footprint in Africa”.
MTN describes the acquisition as “an important step to unlock compelling value” and strengthen its ownership of critical digital infrastructure across Africa. For IHS shareholders, it says, the deal provides an attractive opportunity to crystallise value.
The proposed transaction follows IHS Towers’ strategic pivot to sell out of Latin America. Last week, IHS agreed to sell its 51% stake in I-Systems, a specialist provider of shared optical fibre networks in Brazil, to TIM, which owns the remaining 49%.
IHS is one of the world’s largest tower companies, with nearly 29 000 towers across Africa, serving mobile network operators in five key MTN markets.
“Owning 100% of IHS gives MTN the option to restructure later, partially relist, or spin off towers under more favourable conditions,” says Ofentse Dazela, director at Africa Analysis.
He adds that, while upfront capex increases, MTN will eventually avoid escalating lease costs, and gains flexibility to optimise assets as data demand grows.
Dazela adds that MTN Group’s full acquisition of IHS Towers could challenge the tower-outsourcing model and potentially prompt other operators to reconsider sale-and-leaseback strategies.
Shareholders might be pleased by the move, says Dazela. “Bringing the assets in-house could be viewed positively by the market as it reduces MTN’s exposure to third-party pricing, governance and operational risks.”
The news sent MTN’s share price up marginally yesterday from R193.26 to close at R195.27. Over a five-year period, it is up 168.60%, while the JSE’s All Share index has grown 79.6%.
Peter Takaendesa, chief investment officer at Mergence Investment Managers, adds that management and the board are likely taking comfort from the significantly improved cash flow outlook over the mid-term, as they can now receive dividends from Nigeria again.
Back to the future
MTN first became involved with IHS Towers in 2014, when it sold a large portion of its mobile tower portfolio across several African markets as part of an infrastructure deal.
Under that deal, MTN sold and leased back 9 151 of its Nigerian mobile network towers to IHS in a transaction valued at approximately $2 billion (around R25 billion at the time).
The deal formed part of MTN’s strategy to reduce capital intensity, lower operating costs and sharpen its focus on core telecoms services, while IHS assumed responsibility for managing the passive infrastructure.
MTN also sold its tower portfolios in Rwanda and Zambia to IHS. In 2015, a second tranche of the Nigerian tower sale closed, involving 4 696 towers for a further $533 million (about R5.78 billion at the time).
MTN later sold around 5 700 towers in South Africa in 2022, for which IHS Towers paid about R6.4 billion – leaving MTN with a 24.7% stake in IHS Towers and turning it from a customer into a minority owner of one of Africa’s biggest tower companies.
Takaendesa says opportunity and market conditions have changed materially since MTN sold its IHS stake. “The currency devaluations of the past few years have pushed tower costs higher and MTN’s balance sheet is now stronger.”
If IHS investors agree to the deal, MTN would have more say over the towers it uses in Africa, which could help keep rental and operating costs under control. “However, this also means MTN has to take on more dollar debt and gear up its balance sheet,” he notes.
The funding for the transaction will draw on approximately $1.1 billion (R17.57 billion) in cash on IHS’s balance sheet, along with available liquidity and debt from MTN.
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