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South Africa: MTN Soars As Operator Confirms Bharti Talks
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Business Day (Johannesburg)
6 May 2008
Posted to the web 6 May 2008
Lesley Stones
Johannesburg
TELECOMS operator MTN confirmed yesterday that exploratory talks were under way with India's Bharti Airtel, possibly leading to a tie-up between the largest operators in Africa and India.
MTN's board was forced to make an announcement after a day of hyperactive trading saw its share price hit a record high, and as rumours refused to die that Bharti Airtel was planning to make a bid for the company. Shareholders were finally rewarded with a close-of-trade confirmation that negotiations were taking place.
Until last night both operators had denied having any contact, but that did not quell the trading frenzy that pushed MTN stock to R152,01 -- the highest in its 14-year history. More than 9,5-million shares changed hands and the price gained almost R6 on the day.
The short cautionary said MTN was "engaged in discussions with Bharti Airtel" that might materially affect the price of its securities if successfully concluded. The discussions were "exploratory in nature and may or may not lead to any transaction".
MTN's stock is up 8,6% from a month ago and up 38,9% from a year ago, driven by its extraordinarily strong financial results coupled with persistent rumours that foreign bidders are eyeing the company. Another recent peak came when China Mobile was said to be preparing a takeover bid, although that rumour came to nothing.
Telecoms analyst Sisa Rafuza of Metropolitan Asset Managers said a statement MTN issued last week stressing that it had not received any specific offers had piqued his interest.
"I read between the lines that they were possibly in talks with no tangible offer on the table. That's expected, given that most mobile operators are looking for exposure into Africa, and MTN is a likely target." The share price had not reflected a possible takeover so incessant rumours were naturally pushing the price up now, he said.
Metropolitan Asset Managers holds a siz able stake in MTN, and Rafuza said he was waiting to see if a firm offer materialised. MTN still had huge growth potential in many of the countries where it operates, but if a suitor tempted shareholders with the kind of value that it would take MTN three to five years to achieve by itself, it would make sense to take the money.
"The managers would be more keen to do an acquisition, but if an offer makes sense for shareholders they have an obligation to put it on the table," Rafuza said.
Both MTN and Bharti Airtel serve 62-million cellular subscribers and each can look forward to huge growth potential given the current low level of cellphone penetration in their markets.
Yet Bharti Airtel had also played the denial game, with its chairman Sunil Mittal telling reporters on Friday that it had not made a bid. "How can we make a bid? Nobody has invited us," he said. Asked if he was interested in MTN, he said there was "no point answering hypothetical questions". Speculation was unwarranted, he said.
MTN CEO Phuthuma Nhleko may be reluctant to see the company sold outright, as he has aggressive acquisition plans of his own.
MTN has enjoyed a big boost from its $5,5bn absorption of the Middle Eastern operator Investcom, which accounted for about 70% of its growth last year. Nhleko recently said other acquisitions were being considered as economies of scale were crucial in the cellular business, and expansion could possibly take MTN beyond Africa and the Middle East.
That could see MTN and Bharti Airtel try to thrash out something other than a straightforward marriage.
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"It may be that MTN won't be sold lock, stock and barrel, but that a more complex deal is settled on," said Khulekani Dlamini, a fund manager at Renaissance Asset Management. "It would be good for the South African market if a deal did happen."
Yesterday, MTN's market capitalisation touched R279bn. Its executives and managers are the biggest shareholders with more than 13%. But their stake will be insufficient to prevent a bid succeeding if a suitor makes a sufficiently attractive offer to public investors holding almost 87% of the stock.
"If the Indian consortium is looking to buy MTN it will have to be prepared to pay quite a premium, likely more than R211 a share," said Bruce Main, a fund manager at Ivy Asset Management, who manages MTN shares worth about R100m. "Whoever buys MTN is essentially getting the biggest telecommunications growth story on the African continent." For the year to December 2007, MTN reported a net profit of R11,9bn on a revenue of R73bn. Bharti Airtel also enjoyed a record year, with Mittal saying India's telecoms industry was entering a second wave of growth. With Bloomberg
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