MTN bullish on emerging markets

By Candice Jones, ITWeb online telecoms editor

Johannesburg, 21 Jul 2008

A raging blood feud between Reliance Communication's shareholders, brothers Anil and Mukesh Ambani, has prevented a possible share swap deal with SA's MTN. However, MTN says it will continue to pursue growth in emerging markets.

"Legal and regulatory issues have prevented a deal from being concluded with Reliance. While it is a pity, MTN will not stop looking for opportunities in emerging markets," says MTN spokesman Nozipho January-Bardill.

Reliance has, since May, been in exclusive talks with MTN, which was extended two weeks ago in an updated cautionary.

Talks were expected to conclude today; however, MTN withdrew its cautionary on the JSE on Friday evening, saying: "It has been mutually decided to allow the exclusivity agreement to lapse and caution is no longer required to be exercised by shareholders when dealing in MTN securities." Reliance issued the same statement.

Industry speculation is that the deal could have created a top-10 global telecoms firm. However, it has been plagued by the controversial filial spat between the Ambani brothers.

MTN's shares have taken a knock on the news of the breakdown of talks, with shares trading at R125.56 this morning, down 3.64% from Friday's close of R130.30. Friday's shares closed 2.76% down on the previous day's trade.

Reliance shareholders seem more optimistic, with shares up 2.75% and 3.26% respectively on the Indian BSE and NSE exchanges at the time of publication.

Frying fish

A legal agreement between the Ambani brothers gives Mukesh pre-emptive rights over Reliance shares in the event of change of management. Mukesh took the matter to a Mumbai court last week and all talks between the companies came to a halt.

At the time, analysts speculated that a legal battle could draw out any agreement with the companies for months and MTN was already showing signs of giving up the option.

"How long will MTN have to wait? Perhaps there is another fish to fry," said Richard Hurst, IDC programme manager for communications and networking.

In another earlier interview, Irnest Kaplan, MD of Kaplan Equity Analysts, said Reliance would have been a good fit for the company, given its strategy to make headway in the emerging markets.

However, it is by no means the only possible deal for the operator. "I am sure MTN is looking at many other deals," he added. "If the deal makes commercial sense for the company, they will follow through with it despite the hiccups. If it doesn't, they will walk away. They have done that before," he explained.

Where to next?

While January-Bardill says the company has no specific plans in the pipeline, it will still pursue whatever opportunities it finds in emerging markets. "It is too soon after the Reliance issue to speculate on what deals MTN may go after, but it's safe to say the emerging markets is where the company will be looking."

She says the European emerging markets are not really an option since those are saturated, which leaves markets in Africa, the Middle East and possibly South America.

According to January-Bardill, regardless of failed talks, for MTN it is business as usual. "MTN will be open to companies that are looking for opportunities in SA and we will still look at whatever opportunities may come along."

Earlier this year, MTN walked away from a potentially lucrative deal with another Indian telco, Bharti, after negotiations failed to yield a suitable transaction structure.

In April, it rejected a non-binding approach by Saudi-based Oger Telecoms, and earlier this year it was linked to a potential Telkom/Vodacom/Vodafone deal, which has not yet materialised.