M&A Africa: Are MTN Stocks Cheap Enough For A Takeover?

Written by Dana Sanchez

MTN’s shares are down 35 percent since October 2015, when Africa’s largest mobile service provider reported a multi-billion-dollar fine by Nigerian regulators over unregistered sim cards.

That could make MTN cheap enough to be considered for a takeover, Times Live reports.

MTN’s share price fell from a high of over 260 rand a share in September 2014 to current levels of around 120 rand ($9.20 US) a share, My Broadband reported.

This makes MTN cheap for investors, who can pick up MTN at between R150 and R160 a share, according to Wayne McCurrie, a fund manager at Ashburton.

MTN has faced other challenges over the last two years besides a $5.2 billion fine — later settled at $1.7 billion. These include foreign exchange losses, and losses due to bad investments.

During that period, the company replaced management. MTN’s new CEO, Rob Shuter, is scheduled to take over on March 13. New CFO Ralph Mupita is joining the company in April.

There are no more looming regulatory problems in Nigeria, according to MTN executive chairman Phuthuma Nhleko. About a third of MTN’s revenue comes from Nigeria, where it has about 35 percent market share, African Business Central reported.

In South Africa, MTN has invested heavily in its network and has grown its subscriber base to 30.8 million, driven by the prepaid segment, which is at 25.6 million, according to My Broadband.

MTN South Africa annual revenue has grown to 42 billion rand ($3.2 bullion US), fueled by an increase of 11.4 percent growth in data revenue, and 1.9 percent growth in service revenue.

From Times Live. Story by Asha Speckman and Pericles Anetos.

Wayne McCurrie, fund manager at Ashburton Investments, said that at its current valuation MTN is cheap enough to be considered for a takeover.

A potential buyer could get away with an offer of 150 rand or 160 rand a share ($11.50 to $12.26 US) as it would be “a long haul to get MTN into shape,” McCurrie said.

From a long-term range of about 10 years or more, McCurrie said there is still much value a buyer could extract.

MTN had been on the back foot in terms of investments in its infrastructure because of management’s focus on its regulatory issues, said Alastair Jones, analyst at London-based New Street Research. “They (MTN) tend to react to competition … there’s been significant management changes. We’ll have to see how shareholders will benefit from that.”

On whether there would be interest in acquiring MTN, Jones – who has had a “reduce” recommendation on the stock since September – said it would be “difficult” for an international operator to convince its shareholders to back a bid, given the challenges MTN faces.

“It’s not materially expensive, but certainly not cheap given the challenges it faces … it would be very difficult,” Jones said.

Kate Turner-Smith, research analyst at BPI Capital Africa, said that if MTN was absorbed by an international player, another issue from a competition perspective would be the “validity of transferring spectrum licences.” These relate to radio-frequency spectrum, which is necessary to offer products dependent on advanced and high-speed technology.

MTN was the subject of merger talks in the late 2000s at least three times. These failed for various reasons.

Previous merger talks included a $23-billion tie-up with India’s Bharti Airtel which failed in 2009 after South African authorities allegedly scuppered the deal.

A year later, the mobile operator bid for the African assets of Orascom Telecom, based in the Middle East, but the Algerian government denied approval. Four years ago, there was talk about a renewed merger with another Indian firm, Reliance, but this also fell by the wayside.

Domestically, speculation around a possible deal with the Sipho Maseko-led Telkom has been the order of the day since the group failed with a 2007 bid for the fixed-line assets of what was then a much-troubled state-controlled player. There was renewed speculation about two years ago on a possible tie-up, but it did not materialize.

Consolidation has been a key feature of the local market in recent months with the fate of Cell C taking center stage.

This week, the struggling and smallest of South Africa’s mobile operators secured support for a 5.5-billion rand bid ($76.6 million US) by Blue Label.

The third-largest mobile operator won support from creditors to push ahead with a debt-restructuring deal involving Blue Label, and in the process fended off a potential rival bid from Telkom.

Read more at  Times Live.