MTN wants Egypt

MTN has confirmed it is in discussions with Weather Investments, a 51% shareholder in Egyptian telecoms operator Orascom.

In a statement issued to the Johannesburg Stock Exchange this morning, the company explained that discussions include control of the Egyptian business or some of its operations. MTN does not say which operations exactly; however, speculation holds that Egypt, Tunisia, Algeria, Central African Republic, Burundi, Zimbabwe and Namibia are all possible takeover targets.

The Northern African countries will have caught MTN's eye after a deal with India's Bharti Airtel fell through last year. Algeria has 14 million subscribers, in Tunisia the company has 4.8 million subscribers, and in Egypt it has 24 million people on its network, making them all attractive targets.

However, the new announcement has sparked speculation that MTN could also be shooting for Orascom's Asian subsidiaries, which include an operation in Bangladesh, Pakistan and North Korea.

All countries totalled, Orascom Telecom had almost 93 million subscribers, as at 31 December last year.

Dobek Pater, director of African Analysis, says the deal could be a merger opportunity. MTN has R24 billion cash on hand, meaning it has more than enough in cash flow to make a decent offer for the countries it wants.

Pater says the three North African countries in Orascom's portfolio - Tunisia, Algeria and Egypt - would be an excellent bridge into the Middle East for MTN. A deal of this nature would certainly make it the largest Middle Eastern and African operator, he adds.

Chris Gilmour, Absa Investment analyst, says several of the possible buyout targets, including Central African Republic and Namibia, are a strange choice for MTN. While they are both countries that MTN does not yet have operations in, they are also tough markets to tackle, he notes.

Namibia has similar penetration in the mobile space to SA, and the market share has been dominated by the country's incumbent, MTC.

Gilmour says it will be interesting to see which operations MTN actually takes, and how much the company ends up paying for those businesses.

It is likely MTN would rather avoid Namibia, but Pater says Zimbabwe could be a future goldmine for the operator. “In five years, if the country stabilises, it could be a brilliant opportunity for any company,” he comments.

MTN has reportedly approached banks for $5 billion to help fund the acquisition of several units of Orascom and rumours indicate that a deal is close.