Two of the developing world’s cellphone giants are sizing each other up, while other contendors look on with interest.
There is little difference between MTN and Bharti Airtel — India’s largest mobile operator — at the weigh-in, which makes it difficult to predict which company would win a bout between them.
MTN has a subscriber base of more than 68-million people across 21 countries and a market capitalisation of R279-billion, while Bharti Airtel has a subscriber base of 64million — all in India — and a market capitalisation of R316billion.
MTN’s revenue for the year ended December 2007 was R73-billion, while Bharti Airtel’s revenue for the year ended March 2007 was R49billion.
The MTN board made a close-of-trade announcement on Monday to confirm that the two operators were having talks after 9,5million shares changed hands, with the share price gaining R6 on the day.
The board’s cautionary announcement said that MTN was engaged in “exploratory” discussions with the Indian cellphone giant.
At the opening of trade on Thursday, MTN’s share price was R158. Meanwhile, Bharti Airtel’s share price had dropped by 7% to R150,29 at the same time.
The British international business newspaper, Financial Times, reported that sources close to the negotiations mentioned an initial offer by Bharti Airtel of R165 per share for 51% of the MTN group.
However, analysts say R165 is way too low a price and fails to take into account the growth that MTN is expecting in the next three to five years in “greenfield” markets, such as Nigeria and Iran.
BMI TechKnowledge’s telecoms analyst, Richard Hurst, says Bharti Airtel will have to offer more than R190 a share to attract MTN’s shareholders. Other analysts speculate that the offer might have to be more than R210 a share.
There has also been speculation that the approach by Bharti Airtel will spark a bidding war involving China Mobile and Vodafone, both mentioned as interested parties.
But Hurst says he thinks neither China Mobile nor Vodafone will join the fight for MTN. “I don’t think China Mobile will enter into a bidding war just yet,” he says. “It might be attractive to Vodafone but [Vodafone] will have a hands-off approach.”
Hurst says that if a deal is negotiated it will be of “immense complexity” and it is not yet clear how the purchase of MTN will fit into the Bharti group’s strategy. He says a buyout by Bharti Airtel would be expensive and a big deal for the Indian cellphone player to swallow.
“A merger would make more sense than an outright buyout,” says Hurst. “The two companies could come together with some form of share swap.”
Hurst says a buyout would also not fit with the strategy of the MTN executive management, which has been aggressively pursuing acquisitions of its own.
MTN’s R41-billion acquisition of Middle Eastern operator Investcom has given it a huge boost, accounting for 70% of its growth last year, and offers huge future potential in a number of emerging markets.
“MTN is the big fish in its bowl going along eating all the other smaller fish and now a bigger fish comes behind it,” says Hurst.