MTN takes home iTalk

By Candice Jones, ITWeb online telecoms editor

Johannesburg, 07 Jan 2009

MTN's bid to buy out the remaining 59% of its Durban-based channel partner iTalk Cellular has been given the go-ahead by the Competition Tribunal.

“All conditions have now been fulfilled in order to complete the transaction and MTN expects to finalise the transaction, making i-Talk Cellular a wholly-owned company within the MTN group of companies in the next few days,” says MTN SA MD Tim Lowry.

The deal has been heavily contested by smaller competitor and secondary bidder The Huge Group. It argued that the merger will create an anti-competitive environment and that MTN could cut other providers out of the channel in the KwaZulu-Natal region.

MTN scooped the deal out from under Huge late November 2007. Huge announced it had come to an agreement with iTalk to own a majority share in the company. However, MTN has had pre-emptive rights to the shares and exercised those rights to buy out the rest of the company.

The mobile giant already owned a 41% stake in the business and MTN initially declined a previous offer to purchase more shares in iTalk Cellular.

Winners and losers

Irnest Kaplan, MD of Kaplan Equity Analysts, says the loss of this acquisition is far more significant for the Huge Group than the gain of iTalk is for MTN. “MTN can only win from this deal. With this deal, they are consolidating a channel partner into the business.”

He says this means MTN will not have to share profits with iTalk and the company will have fewer independent channel partners in the mix. “If MTN could buy out the subscriber contracts held by the other channel partners - Nashua Mobile etcetera - it would,” he says.

IDC analyst Richard Hurst says the mobile giant will gain a good footprint in the KwaZulu-Natal region. “On the face of it, it looks like a good deal for MTN.”

The deal should have been expected by the industry, he says. “They have had a very close relationship, and the pre-emptive rights to buy the remaining stock is evidence that MTN would eventually buy out iTalk.

Where to?

It is unclear how heavily Huge relied on the deal in terms of its future strategy, and the company was unavailable for comment this morning to clarify what its plans are now.

However, Hurst says it will need to start looking for another channel partner to buy, or build the channel network for itself. “This will of course be a difficult route,” he adds.

Without doubt, the company has a contingency plan, since after the Competition Tribunal denied it right to participate in yesterday's hearing, the company decided not to pursue the matter further. At the time Huge Group chairman Anton Potgieter said: ““You need to know when to walk away.”