MTN, Africa’s largest mobile-phone company, yesterday said it ended talks with Weather Investments S.p.A to buy $10 billion of assets of Orascom Telecom Holding SAE. The inability to complete the transaction caps more than 24 months during which Johannesburg-based MTN sought purchases to offset increasing competition and price-regulation pressures at home.
“Shareholders have once again been let down by the lack of a successful deal,” said Lindsey McDonald, a Frost & Sullivan analyst, in a note today.
Nhleko, 50, who has said he will leave the company in March after eight years in the post, has tried to expand the company’s business in emerging markets through mergers or acquisitions. He has sought to add new markets to its 21 businesses across the Middle East and Africa as some of the world’s largest operators, including Vodafone Group Plc, seek expansion in Africa to counter slowing revenue growth in Europe.
MTN rose 3.5 percent to 104.99 rand in Johannesburg trading today, while Orascom Telecom shares dropped 5.3 percent to 5.57 Egyptian pounds in Cairo.
MTN said April 28 that it was negotiating to buy all or part of Orascom Telecom, the biggest mobile-phone company by subscribers in the Middle East. A purchase would have broadened MTN’s presence in Africa and the Middle East and extended its reach to markets such as Bangladesh, Pakistan and North Korea.
Failed Bharti Merger
“With the list of failed deals growing, investors are likely to remain concerned that the company may be keen to do a deal at almost any price,” Martin Mabbutt, a Nomura Securities analyst in London with a “buy” rating on MTN shares, said in a note today.
Other analysts, including Avior Research Ltd.’s David Lerche, say MTN can also grow without acquisitions.
“They really don’t have to make an acquisition,” Lerche said via phone today. There is huge scope for expansion into their existing markets.”
The abandoned Orascom talks come after MTN and India’s Bharti Airtel Ltd. failed for the second time last year to conclude a $23 billion merger that would have created the world’s third-largest mobile phone company by subscribers. Talks about a tie-up with Indian mobile operator Reliance Communications Ltd. ended without an agreement in July 2008.
Bharti said this week that it had completed a $9 billion deal to acquire African assets from Kuwait’s Mobile Telecommunications Co., also known as Zain.
Focus on Existing Assets
MTN’s discussions with Orascom were “terminated,” MTN said in a statement yesterday, without giving a reason. MTN spokeswoman Nozipho January-Bardill and Orascom spokeswoman Manal Abdel-Hamid didn’t respond to messages left on their mobile phones.
“Management must now focus their attention on the assets that they have,” said Bruce Main, a fund manager at Ivy Asset Management which holds MTN shares.
Orascom Telecom operates in Algeria, North Korea, Bangladesh, Pakistan, Egypt, Tunisia, the Central African Republic, Burundi, Namibia and Zimbabwe. The talks failed after Algeria’s government blocked a possible sale to MTN of Orascom’s largest and most profitable unit, Djezzy.
“It was clear that after Djezzy was out, there couldn’t be a deal,” Ivy Asset’s Main said.
The Algerian government has said it would make an offer to Orascom for the local unit, exercising its rights of pre- emption. Orascom Telecom this month said it received a letter from the Algerian government saying that it was preparing for talks on the possible purchase of the company’s unit there.
Nhelko needs new growth drivers. In March, the company said full-year profit fell, as South African customer numbers declined 6.4 percent to 16.1 million, the first time subscribers in MTN’s home market have dropped. Subscriptions were hurt by a new law requiring customers to supply personal details to mobile-phone companies.
The company’s regional market is also getting crowded. Mobile-phone operators, including the U.K.’s Vodafone Group, are seeking growth in Africa as revenue gains slow in their home markets.
India’s Bharti Airtel bought Zain assets in 15 African countries. In April, France Telecom SA CEO Stephane Richard said the Paris-based company may invest as much as 7 billion euros ($8.4 billion) in deals focused on Africa and the Middle East in the next five years.