FROM FINANCIAL TIMES
By John Reed in Johannesburg
MTN will pay $5.53bn to buy Investcom in a deal destined to create the biggest mobile telecoms operator in Africa and the Middle East.
The South African company is bidding $3.85 per share for 100 per cent of Investcom in a transaction that will increase MTN's footprint from 11 to 21 countries and its subscriber base from 23 to 28 m. The offer is all cash, with Investcom's shareholders also being given a cash and share alternative.
MTN said it had an irrevocable undertaking from Investcom's controlling shareholder, M1 Ltd, to accept cash and shares for its 70.6 per cent of Investcom's ordinary shares. The South African company is bidding for Investcom's shares at a 27.1 per cent premium over the $15.15 closing price of its target's Global Depositary Shares last Friday.
The combined company will have an enterprise value of $23bn, compared to the $15 bn value of Orascom, currently the Middle East's preeminent mobile operator.
Orascom has 30m subscribers, 2m more than MTN will after the acquisition. MTN's biggest rival in Africa, Vodacom, has about 19m subscribers. Unveiling the transaction at a Johannesburg news conference Phuthuma Nhleko, MTN's chief executive officer, said the two companies hoped, subject to regulatory approvals, to conclude the deal by August. MTN's shares are listed in Johannesburg and Investcom is listed in Dubai and London.
Emerging markets are one of the telecoms industry's fastest-growing market segments. Africa has been a lucrative market for regional leaders MTN and Vodacom, which is owned by Vodafone of the UK and South African fixed-line operator Telkom.
Mr Nhleko said that the combined companies' countries of operation would have on average just 9 per cent penetration, giving them "very meaningful potential for upside." MTN's earnings would be enhanced because of lower costs generated by the acquisition, he added.
Investcom has franchises in five West African countries and Sudan, and would give MTN a "very contiguous footprint in Africa," Mr Nhleko said. There is no overlap between the two groups' countries of operation, apparently nullifying any potential challenge to the deal on antitrust grounds.
The deal supersedes Investcom's undisclosed offer for control of rival emerging-markets operator Millicom, the Dubai-based company confirmed. "We think this transaction makes much more sense for the shareholders of both companies," Azmi Mikati told the FT.
However, the transaction will also expose MTN, which plans to launch a greenfield operation in Iran in August, to some risky new markets. Investcom has franchises in Syria, Afghanistan, Yemen and Sudan, in addition to its operations in West Africa and Cyprus.
MTN's Mr Nhleko sought to play down risk factors, saying that they were "of a political nature" and that his company had "thought through these issues" and taken appropriate measures to protect its investments. Mr Mikati told the FT that operating in emerging markets carried "inherent risk," but also "offer great growth potential."
(c) 2006 Financial Times Information Limited.
