JOHANNESBURG -(Dow Jones)- In one of the largest takeover deals ever entered into by a South African group, mobile phone company MTN Group said Tuesday it has agreed terms that may lead to a $5.53 billion offer for Investcom, which has mobile phone operations in Africa and the Middle East.
MTN, which has put forward a cash option and a combination of cash and shares for the deal, said the merger of the two companies would create a group servicing 28.1 million subscribers in 21 countries.
The proposed offer is subject to regulatory clearances for Investcom's companies in Ghana, Sudan, Syria and Yemen. MTN must also make its formal offer by May 23, unless it receives a time extension from the Dubai Financial Services Authority.
Outlining details of its proposed offer, MTN said it would either offer $3.85 in cash per Investcom share or an alternative of $2.08 in cash and 0.18 MTN shares per Investcom share.
Its offer price is a 27% premium to Investcom's closing price on April 28.
One telecoms analyst, who asked not to be named, said the deal appears to provide MTN with "a quantum leap" in its aim to become the world's leading emerging markets mobile phone operator.
"It's hard to make a call on what fair value is for Investcom, but I'd certainly expect this acquisition to be earnings dilutive for MTN in the short term," the analyst said.
At around 1100 GMT, MTN shares were down ZAR2.03, or 3.4%, at ZAR57.97 compared to a rise of 0.3% in the Top 40 Index.
MTN has been on an acquisition spree over the past two years, boosting its subscriber base to more than 23 million in 10 African countries and Iran.
United Arab Emirates-based Investcom, which is being advised by Citigroup has around 4.9 million subscribers in Benin, Cyprus, Ghana, Guinea Bissau, Liberia, Sudan, Syria and Yemen, and has recently been awarded licenses to build and operate mobile phone networks in Afghanistan and Guinea Republic.
Investec Securities' telecoms analyst Nick Kershaw said he believes the deal will make MTN's gearing more appropriate, as it has been under-geared up until now.
MTN, which is being advised by Deutsche Bank, said the cash portion of its acquisition would be financed through a $3.9 billion credit facility.
"Overall, we think it's a very good deal for MTN, but the market's a bit concerned about the potential issue of around 200 million shares for the cash/share alternative," said Investec trader Tubby Goodwin.
The proposed offer, which is subject to 75% acceptance by Investcom shareholders, is one of the largest takeover deals ever entered into by a South African-headquartered company.
It's similar in size to UK banking group Barclays's purchase last year of a majority stake in local bank Absa Group, which was the biggest single investment by an overseas company into South Africa.
At a press conference outlining the deal, MTN Chief Executive Phuthuma Nhleko said it is "in line with the vision of both companies" and is supported by irrevocable undertakings from around 70% of Investcom's shareholders.
"The deal combines the footprints and strengths of the two companies to secure growth in Africa and the Middle East," said Nhleko.
He said the deal would improve MTN's capital structure, give it access to Investcom's personnel, create an almost seamless band of operations in West and Central Africa and provide access to further Middle East expansion particularly in Syria, Yemen and Afghanistan.
Outlining other benefits of an enlarged MTN, Nhleko said the merger would reduce time to market for new technologies, strengthen negotiations with suppliers and reduce operating overheads.
Commenting on MTN's offer price for Investcom, he described it as in line with the valuation multiples paid in the emerging market sector for high quality mobile phone operators of scale.
Investcom separately announced Tuesday that it has withdrawn its non-binding offer to acquire mobile phone operator Millicom International Cellular.
-By Angus Macmillan, Dow Jones Newswires; 27 11 783 7848, angus.macmillan@dowjones.com
(END) Dow Jones Newswires "
Posted to the site on 2nd May 2006
Posted to: www.cellular-news.com/story/17203.php