Global Insight Perspective | |
Significance | Valued at US$5.53 billion, the deal is easily the largest deal amid a phase of unprecedented mergers, acquisitions and takeovers. Following the logic of a modern-day ‘scramble for Africa’, the race is on between Africa's leading operators to gain exposure to the fastest-growing markets and snap up the best opportunities before they are gone. |
Implications | There are no overlapping operations for MTN and Investcom. The combined group would operate in 21 countries across Africa and the Middle East, with a combined subscriber base of 28.1 million subscribers (as at 31 December 2005). |
Outlook | It is expected that the transaction will be closed by the end of May, although this is conditional on obtaining regulatory clearance in Ghana, Sudan, Syria and Yemen. |
In a statement issued this morning, South African operator MTN said that its board of directors had reached an agreement with Investcom valued at US$5.526 billion to acquire 100% of the operator’s issued share capital. The offer comprises either a cash offer of US$3.85 per share for each of Investcom’s total 1,435,257,519 ordinary shares, or a combined cash and share option under which MTN will pay US$2.0809 in cash plus 0.1807 MTN shares per Investcom share. Investcom said that M1 Ltd, which owns 70.6% of the ordinary shares of Investcom, has made an irrevocable undertaking to accept the cash and shares option, and will therefore become a shareholder in the enlarged group. MTN says that it will fund the cash portion of the acquisition through a credit facility of US$3.85 billion, which has been committed by Deutsche Bank. The equity portion will be financed through the issuance of new MTN shares. With 4.86 million subscribers at 31 December 2005, the figures imply a value for Investcom of US$1,136.98 per subscriber.
Listed on the Johannesburg Stock Exchange, MTN is Africa’s largest operator in terms of both revenue (29 billion rand - US$4.8 billion - for the year ending 31 March 2005; 27.2 billion rand in the nine-month period ending 31 December 2005) and subscribers (23.189 million by 31 December 2005) (see Africa Regional: 23 March 2006: MTN Reports 23.2 mil. African GSM Subscribers and Annual Revenues of US$4.29 bil.). ‘We are delighted with this transaction, which delivers the next stage in MTN Group’s emerging markets growth strategy,’ said MTN CEO Phuthuma Nhleko. ‘This well-considered partnership entrenches our leadership in telecommunications in Africa and the Middle East and will optimise value for our shareholders. It also substantially enhances MTN’s growth prospects, securing a number of important new markets for the MTN Group.’ MTN has itself been the subject of speculation that it would be an attractive target for a takeover, although has been quick to deny any such suggestions. Instead, it has been building up its own stable.
Investcom reported 4.86 million subscribers across eight networks in Africa and the Middle East by 31 December 2005, up 94.4% on 2.5 million at 31 December 2004. Of this figure, it had a total African subscriber base of 2.509 million subscribers - making it the eighth-largest operator in Africa in terms of total subscribers, although it is the market leader in the majority of countries in which it operates. The operator reported a 43% increase in revenues to US$903 million in the year ended 31 December 2005, and a 31% increase in profits to US$207.8 million (see Global: 10 April 2006:Investcom Holdings Reports 91% Y/Y Increase to 4.86 mil. Mobile Subscribers). It is currently present in eight countries and acquired licences in Guinea and Afghanistan in September 2005. Investcom debuted on the London Stock Exchange (LSE) in September 2005, and became the first company to list on the newly inaugurated International Financial Exchange in Dubai (DIFX).
In terms of future growth, the operator has a clear growth strategy. 'Investcom will continue to look at interesting opportunities which we feel will add value to the group,' said Investcom CEO Azmi Mikati, commenting on the outlook for the year ahead. '2006 will see a number of licences being sold in countries across Asia, Africa and Europe, and there is expected to be some industry consolidation. We will take all of these opportunities very seriously and consider those that will enable us to continue our course of strong, profitable growth.'
Outlook and Implications
The transaction will make MTN the largest operator in Africa and the Middle East. Its closest rivals will be Orascom Telecom, MTC/Celtel, and Vodacom (see Africa Regional: 7 April 2006: Mobile Metrics - Expansion, Acquisitions and Future Growth Prospects in Africa). ‘MTN Group is undertaking the proposed transaction to enhance its growth profile in Africa and the Middle East,’ said the operator in its announcement to the Johannesburg Stock Exchange (JSE), ‘to gain further scale in emerging mobile markets, to strengthen its operational capabilities and to diversify its financial profile.’ MTN has historically developed a regional- hub strategy in order to realise economies of scale, hence its operations in Swaziland and South Africa, Uganda and Rwanda ( East Africa), and Nigeria and Cameroon ( West Africa).
'MTN is continuously exploring international expansion opportunities on the African continent and the Middle East in line with its vision to be a leading telecommunications company in developing markets,' said the operator in January 2006. In March last year it made a US$2.673 billion offer for a 100% stake in Celtel, which was subsequently acquired by the Kuwaiti mobile operator MTC (see Africa Regional: 19 April 2005: : MTN's US$2.7 bil. Offer for Celtel Turned Down in Favour of MTC). It then went on to buy stakes in operators in four African countries last year (Loteny Telecom in Côte d'Ivoire, Telecel in Zambia, Mascom Wireless in Botswana, and Libertis Telecom in Congo) and its footprint now covers 10 African countries (see Africa Regional: 13 December 2005: MTN Acquires Congolese Mobile Operator Libertis). MTN also won a 49% stake in Iran's second mobile network (Irancell) in November 2005, and has formed a partnership with a local company to bid for the third Egyptian licence. There are no overlapping operations between MTN and Investcom. Combined, the enlarged group would operate mobile networks in 21 countries, covering a population of approximately 488 million people and serving approximately 28.1 million subscribers (as of 31 December 2005). MTN added that the combined footprint of the two groups would cover important regional hubs more comprehensively. In West and Central Africa it would add Investcom’s five operations in Ghana, Benin, Liberia, Guinea and Guinea Bissau to MTN’s in Cameroon, Congo, Côte d’Ivoire, and Nigeria. In East Africa, it would add Investcom’s operations in Sudan to MTN’s in Uganda and Rwanda. In the Middle East, it would add Investcom’s operations in Syria, Yemen and Afghanistan to MTN’s in Iran.