Cellular network operator MTN`s R33.5 billion acquisition of Dubai-listed Investcom will result in a Lebanese family owning up to 10% of MTN.
MTN`s CEO, Phuthuma Nhleko, says M1 Limited, which owns 70.6% of Investcom - a mobile telecommunications group with a secondary listing in London - has opted to accept a combination of cash and MTN shares for its stake in Investcom.
MTN has given Investcom shareholders the opportunity to accept, instead of cash of $19.25 per global depositary share ($3.85 per ordinary share), an alternative offer of $10.4047 in cash plus 0.9035 MTN shares per Investcom global depositary share.
This equates to $2.0809 in cash and 0.1807 MTN shares per Investcom share.
The alternative offer is subject to the maximum issue of 204.3 million MTN shares, Nhleko says.
Speaking at the presentation of the deal yesterday afternoon, Nhleko said this meant M1 Limited would end up with between 7% and 10% of MTN, depending on the choices of the other shareholders.
M1 was founded by brothers Taha and Najib Mikati. Taha Mikati is Investcom`s chairman while Najib Mikati is the vice-chairman. Investcom CEO Azmi Mikati is Taha Mikati`s son.
Najib Mikati was appointed prime minister of Lebanon in April last year after the collapse of Omar Karami`s government. Mikati`s role was to prepare the country for an election, after which he was succeeded by Fouad Siniora in July last year.
Worth the price
Nhleko says the offer for Investcom, which is at a 27% premium to the company`s share price on 28 April, is "quite reasonable" in the telecoms sector.
He says the deal represents the most attractive acquisition opportunity for MTN, providing a superior asset positioning with an outstanding growth profile, as well as substantial synergy potential.
The deal not only adds another 10 countries to the 11 in which MTN already operates, but the combined group`s subscriber numbers and earnings before deductions put it ahead of most of its peers operating in Africa and the Middle East.
Combined subscriber numbers as at December amounted to 28 million (MTN: 23 million), second only to Orascom Telecom, which had 30 million. South African rival Vodacom had the third-largest subscriber base, with 19 million subscribers.
Combined earnings before deductions for the 2005 calendar year are estimated at R17.2 billion (MTN: R14.7 billion).
"The transaction is really a consolidation of two entities," Nhleko says. "We believe that pursuing this transaction will give us a fairly consolidated footprint in the Middle East and Africa."
Attractive elements
One of the key elements of the deal, he adds, is the fact that penetration in the countries where Investcom operates is low - on average about 9% - which implies potential upside.
Another key aspect for MTN is diversification of its revenue and earnings sources. MTN as a standalone entity in 2005 depended mainly on two countries for its revenue: SA (56%) and Nigeria (33%). Other countries accounted for only 11%.
SA provided 45% of earnings before interest, tax, depreciation and amortisation (EBITDA) while Nigeria provided 42%. Other countries generated only 13% of EBITDA.
However, based on 2005 figures, although the combined group would still have derived 49% of revenue from SA, Nigeria accounted for just 28% while other countries` share was 23%.
EBITDA would have been even more diversified, with SA generating 37%, Nigeria 35% and others 27%.
These figures exclude the impact of Iran and Sudan, which Nhleko says are expected to be significant future contributors.
"This transaction pushes us a long way towards the objectives we set ourselves," Nhleko says. "We are quite comfortable that this is going to generate significant value for shareholders going forward."
The MTN share was trading 200c or 3.32% higher at 6 225c on the JSE this morning.
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