MTN buyout rumours quashed

Johannesburg, 08 Jan 2007

An analyst has cast doubt on market speculation that Germany-based T-Mobile may purchase MTN.

The analyst says T-Mobile is too rigid to approach the African and Middle Eastern cellular provider.

T-Mobile is one of Deutsche Telekom's three strategic business units and accounts for 49% of its revenue. Deutsche Telekom has a market capitalisation of $82 billion, or R593.7 billion at this morning's exchange rate of R7.24.

The analyst - who spoke on condition of anonymity - says while "anything is possible", he would be surprised if T-Mobile made a bid for MTN, which has operations in Iran, Nigeria, Cameroon, C^ote d'Ivoire, Congo, Uganda, Rwanda, Ghana, Syria, Yemen, Sudan, Benin, Liberia, Cyprus, Guinea Bissau and Guinea.

The analyst says Western European and US investors are rigid on rules and regulations, and are unlikely to invest in a company with holdings in emerging markets.

MTN Group CEO Phuthuma Nhleko previously stated the company is focusing on Africa and the Middle East, where there is room for growth.

In addition, with a market capitalisation of between R150 billion and R180 billion, MTN is too rich a buy for the company, says the analyst.

He adds that any company considering buying MTN will have to pay a premium. At about 30%, this places a price per share bid at over R100, he says.

Ruling out any company in a developed market, the analyst adds that few companies remain that either have appetite or are large enough to consider the company a viable acquisition. The only company he considers to meet these criteria - China Mobile - has already denied making a bid for the firm.

In addition, with each passing day, the MTN share gains ground, rapidly pricing it out of reach. "It's unlikely that MTN will be bought out anytime soon."

Always popular

However, analysts concur MTN is a hot target. Another analyst says it is an attractive buy for any telecoms firm wanting to establish an emerging market footprint. "Vultures will always circle around MTN."

The analyst expects a 15% to 25% premium on MTN, in line with another valuation.

Another analyst anticipates much comment around MTN, but questions why T-Mobile is the subject of market speculation and not Orange, for example. "MTN is hot in terms of emerging markets."

MTN's shares were trading 0.12% up in early morning trade today at R80.90, a 10c improvement on Friday's close.

MTN's group corporate affairs division said it could not "comment on market speculation", and T-Mobile was not immediately available for comment this morning.

Twist in the tale

Another viewpoint indicates Deutsche Telekom may unload T-Mobile.

WebProNews speculates Google, with a market capitalisation of $83 billion - or R601 billion - could purchase T-Mobile's US operation. The report indicates Google, which is currently trading at $300 a share, has cash reserves of $2 billion and could easily raise cash.

T-Mobile has operations in the US, the UK, Germany, Austria, the Netherlands, as well as Central and Eastern European countries such as Slovakia and Croatia.

The report adds that Deutsche Telekom is dissatisfied with how the company is doing in the US and has hinted it may sell the company.

It points to an existing relationship between the companies, including the fact that Google recently signed a deal with T-Mobile to provide Web services.