Idea Cellular Said to Weigh Sale of Stake, Hold Talks With MTN

Idea Cellular Ltd. (IDEA)’s controlling shareholder is weighing a sale of its stake in India’s third- largest mobile-phone company by value and held talks with potential bidders including MTN Group Ltd. (MTN), said three people with knowledge of the matter.

Discussions between India’s Aditya Birla Group and MTN, based in Johannesburg, are at an early stage and may not result in a transaction, said the people, who declined to be named because the information is private. Birla Group is also talking with telephone companies in the U.S. and Europe about a deal for the stake in Idea, said two of the people.

Billionaire Kumar Mangalam Birla’s Aditya Birla controls Idea with a 47 percent stake and Malaysia’s Axiata Group Bhd. (AXIATA) owns 19 percent. Idea’s market capitalization is about $5.15 billion and the Birla Group’s stake is valued at about $2.41 billion, according to data compiled by Bloomberg. Any deal with MTN would likely involve a mix of cash and shares, said one of the people.

MTN had about $5.4 billion cash as of the end of December, data shows. Axiata, Southeast Asia’s second-largest mobile-phone provider, in February booked a 1.1 billion-ringgit ($364 million) impairment on its investment in Idea after the market value declined. The writedown reflects the “intense competition following the entry of a number of new operators to the Indian market,” Axiata said in a statement on Feb. 23.

Idea gained 2.6 percent to 69.3 rupees at 10:12 a.m. in Mumbai, poised for its highest close in two months, after rising as much as 20 percent.

Tower Surge

MTN, Africa’s largest mobile-phone company, has failed to reach deals at least four times in the past two years. It ended talks with Weather Investments SpA to buy as much as $10 billion in assets from Egypt’s Orascom Telecom Holding SAE (ORTE) in June. MTN and India’s Bharti Airtel Ltd. (BHARTI), India’s biggest wireless operator, failed in 2009 to reach agreement for a second time, while talks with Mumbai-based Reliance Communications Ltd. (RCOM) over a deal collapsed in 2008.

Pragnya Ram, a spokeswoman for Aditya Birla Group in Mumbai, denied that the group was in talks to sell the stake. MTN spokesman Rich Mkhondo declined to comment.

“Axiata does not comment on reports which are speculative in nature,” the Kuala Lumpur-based company said in an e-mailed statement today. “However, we would like to reiterate our long- term commitment to Idea which represents an important strategic stake for Axiata.”

Idea has expanded its number of cell-phone towers from 10,000 in the year ending March 2007 to 70,000 in the last quarter, said Piyush Choudhary, a Mumbai-based analyst with Indiabulls Securities Ltd. (IBSEC)

Dividend Focus

Regulatory concerns triggered by official probes into the 2008 allocation of 2G licenses are “reflected in the current valuations,” Choudhary said. “We expect re-rating of the stock led by robust operational performance and as regulatory concerns recede.”

MTN will increase dividends to shareholders in the absence of takeover opportunities, and the company will “continue to evaluate” acquisitions, outgoing Chief Executive Officer Phuthuma Nhleko said on March 9. He was replaced this month by Sifiso Dabengwa, who had been chief operating officer since 2004.

“I understood MTN is not doing something company transforming,” said Neville Chester, who helps manage the equivalent of $33 billion at Coronation Fund Managers Ltd. (CML) in Cape Town. “I would be surprised” if the company made a big acquisition after saying it would focus on dividends, he said.

Proposal Evaluation

Idea on Sept. 20 said in a filing to the stock exchanges that the company continuously evaluates various proposals. Idea added 2.5 million customers in January, the last month for which the Telecom Regulatory Authority of India has complete information, bringing its share of India’s 771 million mobile subscribers to about 10 percent.

With 84.3 million subscribers, Idea is the fifth-largest private operator in terms of customers in India’s crowded telecom market, where as many as 15 operators compete for customers who pay amongst the lowest rate per minute in the world.

“Everybody agrees and recognizes that there’s just way too many companies out there and some amount of M&A needs to take place,” said Kunal Bajaj, head of telecommunications consulting firm Analysys Mason India Pvt. in New Delhi.

To contact the reporters on this story: George Smith Alexander in Mumbai at galexander11@bloomberg.net; Brett Foley in London at bfoley8@bloomberg.net; Anto Antony in New Delhi at aantony1@bloomberg.net

To contact the editors responsible for this story: Jeffrey St.Onge at jstonge@bloomberg.net; Arijit Ghosh at aghosh@bloomberg.net; Philip Lagerkranser at lagerkranser@bloomberg.net

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