India Eyes Africa: Bharti targets MTN

India's Bharti Airtel is considering making a bid to acquire South Africa-based MTN Group, in a move that would be valued at around US$17 billion and make the Indian operator among the largest in the world according to the Financial Times.

Notwithstanding the usual posturing of such acquisitions---deny, announce, rejoice--Bharti's founder and chairman, Sunil Mittal, denied that the operator's board had met to look at making a formal approach for MTN, adding that no decision had been made. "We talk to people all the time and don't preclude anything," Mittal was quoted as saying. "I do not want to be compromised by ruling anything out for months." Akhil Gupta, joint managing director of Bharti added: "There is nothing on the table as of now."  Clearly, we're in deny phase.

Africa is where it's At!
Africa's mobile markets are ripe for international investors thanks to low penetration levels (24% against 30% across Africa), fast-growing population , and regulatory regimes encouraging competition. Analysts at Informa Telecoms and Media forecast that the market will reach 158 million mobile subscriptions by 2012 - a 78% growth.

In this context, international investors are entering the market aggressively, Middle Eastern groups invested in new licenses (Etisalat, Comium, HiTs Telecom, and Warid Telecom), and other operator groups like Bharti are making the region an integral part of the global expansion strategy. This is the case for Orange, which launched new operations in four countries in 2007/2008 (Central African Republic, and the three Guineas), and for Zain, whose Celtel operations in the regions are scheduled to re-brand to Zain by the end of 2008.

MTN has the largest footprint in the region's markets, including the three leading markets (Nigeria, Ghana and Ivory Coast) and an expanding portfolio of ISPs. It is no wonder then that the group is attracting the attention of outside investors looking for a way into one of the world's most promising telecommunications markets.

No Means Yes?
MTN has relayed in the past that it would be open to evaluate an offer from a global player, though it issued a vanilla statement that it "receives tentative approaches from time to time, which are always evaluated." It added that "the board of MTN has not received any specific proposal, and if and when there is anything specific to report, the market will be notified." I'm sure the bankers have been busy in the background especially given the credit crunch for such large transactions. If its in the public press then its on. These things are usually started via a phone call, not a formal offer.

MTN has a solid reputation in the operator community reflecting its ability to grow and profitably prosper in low ARPU markets in across Africa. MTN is an obvious target for major investors looking to increase their presence in high-growth emerging markets. MTN had a total subscription base of 68.2 million at end-1Q08, according to the operator, up from 58.6 million at end-4Q07, while Bharti is known to be eager to pursue an aggressive M&A strategy to spur growth and apply some of the growing capital and power accruing to global Indian brands. Any initial bid for MTN from Bharti would most likely be a partial tender offer for 51% of the group.

MTN by the Numbers
MTN, which has operations in 21 countries, is 76.9% publicly traded on the Johannesburg Stock Exchange, so Bharti or any other would-be buyer would have to make an offer to institutional and private investors to acquire a majority stake in the company. It has a market capitalization of US$33 billion, so a 51% stake in the company would cost US$16.83 billion at current values.

MTN's US$5.5 billion acquisition of Investcom in 2006 expanded its footprint outside South Africa, but many of the markets in which it operates have relatively low penetration rates, making it a prime candidate for an acquisition approach.

Bharti is benefiting from very strong growth. It had the second-highest number of net additions in 4Q07 in Asia Pacific, with 6.28 million, and India remains the world's fastest-growing country in terms of net adds, with 23.9 million in 4Q07, ahead of even China, which had 23.3 million.

To the Bankers Please
Standard and Chartered is reported to be advising Bharti on its options, and SingTel, which owns 35% of Bharti, is thought to be supportive of a bid for MTN.