South African cellphone giants Vodacom and MTN are not sitting ducks for takeovers by international players, says a leading telecoms analyst at investment house Merrill Lynch.
Meloy Horn shot down rumours that have plagued the South African market for the past fortnight that United Kingdom-based Vodafone, the world’s largest cellular phone operator, might take a controlling interest in its South African subsidiary, Vodacom.
Talk that Vodafone may wish to take control of South Africa’s largest cellular phone operator by subscriber numbers has also been fuelled by the former’s aggressive brand promotion following its partnership with Vodacom to launch the third generation, or 3G, mobile technology.
It currently holds 35% of Vodacom, with Venfin holding 15% and fixed-line monopoly Telkom 50%.
Horn noted that ‘everyone wants a bigger piece of Vodacom”. Departing from the premise that Vodafone would need Venfin’s stake to achieve a 50% holding, Horn suggested that Venfin required the cash it extracts from Vodacom to make other investments in technology.
Even if Venfin were to sell, it was likely that the other shareholders had pre-emptive rights on the stake, Horn said. The logical implication was that Telkom would increase its stake.
The last time there was a sale of a Vodacom stake was when HCI sold its 5% stake. At that stage Telkom did not participate, leaving Venfin and Vodafone to split the stake at 3,5% and 1,5% respectively.
Ben Padovan, a Vodafone spokes- person, told the Mail & Guardian that the company did not react to market speculation, but added: ‘That is not to suggest that it [a takeover] will or will not happen.”
He then added that the partnership with Vodacom also covered better roaming for users, and that the South African branding campaign was designed to allow global users to connect with the brand when they visit South Africa.
Vodacom is the only subsidiary in which Vodafone does not have a controlling interest.
A London-based analyst suggested that such a move would be welcome, as it would consolidate Vodafone’s revenue streams.
As for Vodacom’s main rival, MTN, there has been a suggestion that as the only local cellphone operator without an international shareholder, and with its robust performance and successful forays into Africa, especially Nigeria, it might be ripe for the taking by a player such as Norwegian operator Telenor.
Citigroup’s Smith Barney suggested that Telenor might leave Russia and go for MTN, which is known to be hunting for potential acquisition.
However, present growth is driven by expanding subscriber numbers and cost containment.
In the six months to September, MTN’s headline earnings per share were up 34% to R1,66. After the release of its results, its share price rallied to above R40, making it one of the most actively traded shares in recent weeks.
However, Horn pointed out that MTN’s shareholding was such that no one stake could be purchased to establish a position. No less than 81% is classified as public, with the single largest shareholder being Newshelf 664, with 18,63%.
To build a significant position, a buyer would, therefore, need to go through the open market, a process that would require extreme patience.
‘You would not be so stupid as to tell the market,” Horn remarked. She also pointed out that any buyer would have to pay a significant premium.