MTN / Orascom

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The king of not-quite-doing-deals is at it again: no sooner had South Africa’s MTN confirmed that it was in acquisition talks with Egyptian telecoms group Orascom, than the wheels started to come off. For MTN investors, that may be no bad thing.

MTN has been hurried into action by the imminent arrival in Africa of India’s Bharti Airtel, with which it twice tried and failed to merge. Bharti has paid about $10bn for an alternative route into the continent. Its entry into 15 countries will intensify competition, particularly in Nigeria, a market on which MTN increasingly depends. So MTN is considering spending a similar sum to expand and diversify its own portfolio.

Orascom seems an odd derisking choice: the two companies share a penchant for the “Axis of Evil” crowd (MTN has operations in Iran, Afghanistan and Syria; Orascom is in North Korea). But MTN only really wants Orascom’s African assets, particularly its Algerian business which earns about $1bn before interest, tax, depreciation and amortisation (half Orascom’s total) and has ebitda margins of nearly 60 per cent.

But Algeria has lately brought only trouble to Orascom: rioters after a football match with Egypt last year attacked Orascom’s shops, causing almost $100m of damage. Separately, the Algerian government unexpectedly charged it $600m in back taxes and penalties. Now, Algiers is threatening to block any sale to MTN or take a majority stake. It might yet relent, but it is a cause for concern when the only asset in the deal really worth anything to MTN comes with such big warning signs. MTN’s chief executive Phuthuma Nhleko retires next year and would probably be frustrated if he fails again to consummate a deal. But investors might see it as a lucky escape.

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