Phuthuma Nhleko increased MTN Group Ltd. (MTN)’s subscribers almost 30-fold during his near-nine year tenure as chief executive officer and pushed the African wireless carrier into countries such as Iran and Syria. As he becomes chairman today, one nation lingers in his mind: India.
Five years after first trying to strike a deal with a phone company in India, Johannesburg-based MTN is evaluating assets in the country, said four people familiar with the matter, asking not to be identified because the deliberations are private. The discussions could lead to a revival of an attempt to link up with Reliance Communications Ltd. (RCOM), the carrier of billionaire Anil Ambani that tried unsuccessfully to merge with MTN in 2008, three of the people said.
MTN was twice in talks to be bought by another Indian operator, New Delhi-based Bharti Airtel Ltd. (BHARTI), until negotiations broke down in 2009 amid political opposition in South Africa. A successful deal this time would give MTN its first major foothold in Asia, bringing it closer to matching the international reach of Vodafone Group Plc. (VOD)
“It would make sense, to the extent that such an opportunity presented itself, to look eastwards,” Nhleko said in a late 2009 interview, after MTN ended merger talks with Bharti. “Our natural bent and inclination would always be Africa, the Middle East, and, most probably, opportunities further eastwards.”
Market Value
This time, MTN may have greater bargaining power. Reliance Communications shares have fallen 74 percent and Bharti is down 28 percent since those botched deals through yesterday, while MTN has jumped two-thirds since 2009 to give it a market value of $35 billion, more than the two Indian companies combined.
Reliance Communications dropped 3.2 percent to 109.2 rupees at 1:40 p.m. in Mumbai, valuing the company at $4 billion. MTN declined 0.8 percent to 180.26 rand as of 10:10 a.m. in Johannesburg. The stock slid as much as 1.9 percent yesterday after Bloomberg News reported the Indian plans.
“Buying Reliance won’t be cheap and it would be a really difficult operation,” Khulekani Dlamini, head of research at Afena Capital, said in the interview. “There’s an adverse environment all around, the shareholders are not particularly easy to do deal with. Its highly competitive, very fragmented, regulatory concepts are very fluid in India which makes managing the company very difficult.”
Funding Room
Ambani is unlikely to exit Reliance Communications, India’s third-largest wireless operator by customers, making an outright takeover less probable, said one of the people.
Representatives at Reliance Communications and Ambani’s office didn’t have a comment. In an e-mailed statement, MTN said it doesn’t comment on “market speculation.”
Bruce Main, a fund manager at Ivy Asset Management Ltd., said MTN could “quite comfortably” fund an acquisition with debt and its own cash. An obstacle would be “the competitive environment in India, which is so aggressive that the main mobile operators started slashing margins substantially,” he said.
MTN, led by CEO Sifiso Dabengwa, is seeking to expand beyond Africa and the Middle East amid increased competition and slowing growth in the region’s phone market. Last quarter, MTN’s monthly revenue per user in South Africa dropped 10 percent to 110.62 rand ($11.30) from a year earlier.
Orascom Telecom
Nhleko, who replaces Cyril Ramaphosa, took over at MTN in 2002 when the company had just over 5 million mobile subscribers and operations in six countries including South Africa and Cameroon. By the time he left, the customer count reached 147 million, tapping into countries including Syria, Iran and Afghanistan. In all, MTN has operations in 21 countries when Nhleko stepped down in March 2011.
MTN expansion would have been faster if it wasn’t for Nhleko’s failure to close four deals, including as much as $10 billion in assets of Orascom Telecom Holding SAE, over a two-year period.
Yesterday, MTN said its subscribers exceeded 197 million at the end of April. MTN is the biggest carrier in Nigeria, although at home in South Africa, its market share trails that of Vodacom Group Ltd. (VOD), a Vodafone unit.
MTN is one of 12 operators shortlisted for the sale of two telecommunications licenses in Myanmar and is looking for other targets in southeast Asia.
Vodafone Taxes
In 2008, talks to combine MTN with Mumbai-based Reliance broke down amid disagreements between Anil Ambani and his brother, Mukesh, who had split the Reliance business empire after a public feud. Last month, the Ambani brothers signed a 12 billion rupee ($215 million) pact to share a fiber-optic network, their first deal since breaking up Reliance.
Bharti Airtel is the largest mobile-phone company in India, followed by Vodafone and Reliance Communications, according to February data from the country’s phone regulator. In 2010, Bharti Airtel expanded to Africa by buying Kuwaiti carrier Zain’s African assets for $9 billion.
India’s telecommunications market has proven challenging for foreign companies looking to tap its growing middle class. Vodafone has been embroiled in a long-running dispute over tax payments with Indian regulators, and has said it isn’t planning on investing in high-speed fourth-generation mobile services in the country amid confusion over the future of its license there.
Source:Bloomberg
