MTN's ambitions have not died

MTN's ambition to be one of the world's top three cellular network operators has just been put on hold, and not thwarted outright, say analysts.

Last week, MTN and its Indian counterpart Bharti Airtel announced they are not going ahead with their merger plans, mainly due to the reluctance of both the Indian and South African governments to give the deal their final blessings.

Should the deal have been consummated, it would have been worth an estimated $24 billion (R184 billion) and would have meant the company would have ranked just behind China Mobile and Vodafone (Vodacom's controlling shareholder).

MTN's JSE shares spiked higher on the news, rising above R132 towards the end of Friday's trading session, before pulling back in mid-morning trade today by 61c, to R131.

Dealers say there was a fair amount of institutional demand for the MTN shares, as index tracker funds had to top-up on the stock following the news.

“We saw good demand as the uncertainty of the deal had disappeared, and there is feeling that MTN can go ahead with its core business,” a trader said.

There is a market perception that politics, such as government interference, has played a role in scuppering the deal, he added. “That has made some investors slightly nervous, because we saw a similar upset earlier this year with the Vodacom listing.”

Another equity trader says there is still a fair amount of optimism that MTN will continue to look at doing large corporate deals. “MTN is developing a reputation for being bold with its plans and this has not been dented by the collapse of the Bharti deal,” he says.

But the Congress of South African Trade Unions, which has created a lot of noise opposing the Vodacom listing, has indicated it has no particular feelings about the deal.

Communications minister Siphiwe Nyanda and finance minister Praven Ghordan had both indicated they wanted to see MTN remain a South African listed company, with the new entity having at least a dual listing. But Indian law does not allow for this.

Denis Smit, CEO of research firm BMI-TechKnowledge, says: “Who knows what the final outcome would have been if the deal had gone ahead. I think it was a bad deal because it was not clear who would benefit.”

Smit says it is now time that MTN focuses on its core business again, of being a network operator rather than a mergers and acquisitions machine.

“MTN has been involved in a number of takeover attempts, such as the mooted plan to buy Telkom, but it is time to focus again on being a network operator,” he says.

Lindsey Mc Donald, analyst at international consultancy Frost & Sullivan, says the day-to-day operations of MTN have not been affected by the merger and acquisition activity, because of its decentralised structure.

“Operations are carried out at the local level as each of its business units are separately registered in each country,” she says.

Mc Donald says, however, that MTN may want to look at strengthening its teams in some countries, such as Zambia, where quality issues have been a problem, and it may not have done as well as it could have.

“I believe that MTN will lay off M&A activity for at least the next six months, but within the next year or two it will begin looking at buying more smaller network operators, and even consider the Latin American market,” she says.