MTN might yet walk away

By Christelle du Toit, ITWeb senior journalist

Johannesburg, 09 Jul 2008

While MTN has extended talks with India-based Reliance Communications for another two weeks, the short exclusivity period might be an indication that the South African operator's patience is wearing thin.

This is despite the market reacting positively to today's announcement, with Reliance's shares on the Indian stock market surging almost 10% by mid-morning.

In a short statement issued earlier today, MTN warned that "there is no certainty that these discussions will result in a transaction", something commentators say the market should take to heart.

Lindsey McDonald, Frost & Sullivan industry analyst, says the family feud between Reliance chairman Anil Ambani, and his brother, Mukesh, has led to negotiations between the two telcos being drawn out. This, in turn, could lead to MTN walking away from the deal.

"I would not be surprised if MTN decided to assess other options," she says. "It depends on the value Reliance brings to them, but they have walked away from big deals before."

While Anil has been negotiating a reported $66 billion merger with MTN, Mukesh has reportedly claimed first right of refusal on the sale of any Reliance shares, threatening to scupper the entire process.

Spanner in the works

Earlier this year, MTN walked away from a potentially lucrative deal with another Indian telco, Bharti, after negotiations failed to yield a suitable transaction structure.

In April, it rejected a non-binding approach by Saudi-based Oger Telecoms, and earlier this year it was linked to a potential Telkom/Vodacom/Vodafone deal, which has not yet materialised.

McDonald says MTN is picky about its bed partners, as its corporate culture has been consistently maintained.

"There are other emerging market players that are attractive options," McDonald warns.

A local financial analyst, who spoke on condition of anonymity, says it is clear the Ambani brothers' feud "has thrown a spanner in the works".

"Extending the exclusivity of the talks indicates that something happened that was not planned for, and the parties ran out of time," he says.

However, he too warns: "You can't expect MTN to sit around and wait forever - there are other emerging markets."

He says the fact that talks have been extended for the time being indicates a will for the deal to be concluded, but the Ambani family drama will have to be sorted out sooner rather than later for this to happen.

Falling apart

By mid-morning, MTN was trading 2.95% up at R132, and Reliance was up 9.25% at 453.6 rupees on the Indian NSE.

Ferdi Heyneke, portfolio manager at Afrifocus Securities, says the market is still pinning its hopes on the deal going through, which is why there is still upward movement on MTN's shares.

"Any speculative investment will raise the market's interest," he says.

He says should the Reliance deal fall through, MTN will most certainly take a knock in the short-term, but it should bounce back in time, prevailing market conditions allowing.

"When the Bharti talks fell through, the market fell apart," he recollects.

However, Heyneke says MTN is a solid company with a good spread of subscribers and, under normal circumstances, should be a good investment.