MTN Says Deal Prospects Are Limited, Shifts Focus of Company to Dividends

MTN Group Ltd., Africa’s largest mobile-phone operator, will focus on investor payouts rather than big acquisitions, a “paradigm shift” in strategy after four failed deals, Chief Executive Officer Phuthuma Nhleko said. The stock rose to the highest price in more than three weeks.

“There are a limited number of value-accretive consolidation opportunities left within emerging market telecoms,” Nhleko said today at the annual shareholders meeting. “We will position ourselves somewhat differently to how we have done over the past 8 to 10 years. One of the things we will do is to increase the dividend payout ratio.”

MTN has been stymied in attempts to buy competitors in the last two years. The Johannesburg-based company ended talks in June with Weather Investments SpA on buying as much as $10 billion in assets of Egyptian operator Orascom Telecom Holding SAE. MTN and India’s Bharti Airtel Ltd. failed in 2009 to reach agreement for the second time in as many years, while talks with Mumbai-based Reliance Communications Ltd. collapsed in 2008.

“They are sobering up to the fact that growth opportunities in emerging markets are not as lucrative as they used to be, and that cash in the hands of shareholders is of more value,” Jan Louw, an analyst with Afrifocus Securities Ltd., said in a phone interview from Johannesburg.

Acquisition Pricing

Pricing of acquisitions “is tough,” Nhleko said in an interview at the meeting in Johannesburg. “Assets are not cheap,” and “the kind of opportunities that meet our criteria are limited.”

MTN gained 3.05 rand, or 2.8 percent, to 113.05 rand in Johannesburg trading, the highest price since June 22. That pared the stock’s decline this year to 4.1 percent.

The company’s dividend on 2009 earnings was 1.92 rand a share. Net income last year amounted to 14.7 billion rand ($1.9 billion).

The board will want any future payouts to be “sustainable,” Nhleko said, declining to give details.

While MTN will continue to evaluate opportunities, future growth will come from existing operations, expanded in part by smaller acquisitions, Nhleko said. The company plans to focus more on cutting costs by standardizing systems, processes and technologies, MTN said in a statement.

Capital expenditure will also slow and management will look for ways “to meaningfully improve cash returns to shareholders,” the company said.

To contact the reporter on this story: Nicky Smith in Johannesburg at nsmith38@bloomberg.net.

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