MTN Group Ltd. (MTN), Africa’s largest wireless carrier, is exploring a potential acquisition in India, five years after it first tried to strike a deal with an Indian company, according to four people familiar with the matter.
The Johannesburg-based carrier is evaluating assets in the country, said the people, asking not to be identified because the deliberations are private. The discussions could lead to a revival of an attempt to link up with Reliance Communications Ltd. (RCOM), the phone company of billionaire Anil Ambani that tried unsuccessfully to merge with MTN in 2008, three people said.
MTN was twice in talks to be bought by another Indian carrier, New Delhi-based Bharti Airtel Ltd. (BHARTI), until negotiations broke down in 2009 amid political opposition in South Africa. Reliance Communications shares have fallen 74 percent and Bharti Airtel is down 28 percent since those botched deals, while MTN has jumped two-thirds since 2009 to give it a market value of $35 billion, more than the two Indian companies combined.
“I wouldn’t be overjoyed” if MTN tries to revive a deal in India, said Khulekani Dlamini, head of research at Afena Capital, at MTN’s annual shareholder meeting today. “You’re talking about a market where pricing cannot really get any better and could possibly deteriorate further. It also has an adverse impact for my dividend. If they go and have to spend a lot more money there, it’s worrisome.”
MTN today named former Chief Executive Officer Phuthuma Nhleko, who pushed MTN outside South Africa during his almost nine-year tenure, as chairman to replace Cyril Ramaphosa. With 197 million subscribers across more than 20 countries at the end of April, MTN is the biggest carrier in Nigeria, although at home in South Africa, its market share trails that of Vodacom Group Ltd. (VOD), a Vodafone Group Plc unit.
A successful deal would give MTN its first major foothold in Asia, bringing it closer to matching the international reach of Vodafone and Bharti Airtel. MTN could “quite comfortably” fund an acquisition with debt and its own cash, said Bruce Main, a fund manager at Ivy Asset Management Ltd. An obstacle would be “the competitive environment in India, which is so aggressive that the main mobile operators started slashing margins substantially.”
MTN closed 0.1 percent lower at 181.75 rand after sliding as much as 1.9 percent on the Johannesburg exchange. Reliance Communications dropped 1.2 percent in Indian trading.
Ambani is unlikely to exit Reliance Communications, India’s third-largest wireless operator by customers, making an outright takeover less probable, said one of the people.
Representatives at Reliance Communications and Ambani’s office didn’t have a comment. In an e-mailed statement, MTN said it doesn’t comment on “market speculation.”
MTN, led by CEO Sifiso Dabengwa, is seeking to expand beyond Africa and the Middle East amid increased competition and slowing growth in the region’s phone market. In the first quarter, MTN’s monthly revenue per user in South Africa dropped 10 percent to 110.62 rand ($11.40) from a year earlier.
MTN is one of 12 operators shortlisted for the sale of two telecommunications licenses in Myanmar and is looking for other targets in southeast Asia.
In 2008, talks to combine MTN with Mumbai-based Reliance broke down amid disagreements between Anil Ambani and his brother, Mukesh, who had split the Reliance business empire after a public feud. Last month, the Ambani brothers signed a 12 billion rupee ($215 million) pact to share a fiber-optic network, their first deal since breaking up Reliance.
Bharti Airtel is the largest mobile-phone company in India, followed by Vodafone Group (VOD) and Reliance Communications, according to February data from the country’s telecommunications regulator. In 2010, Bharti Airtel expanded to Africa by buying Kuwaiti carrier Zain’s African assets for $9 billion.
To be sure, India’s telecommunications market has proven extremely challenging for foreign companies looking to tap its growing middle class. Vodafone Group has been embroiled in a long-running dispute over tax payments with Indian regulators, and has said it isn’t planning on investing in high-speed fourth-generation mobile services in the country amid confusion over the future of its license there.
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