MTN in $5.5bn agreed takeover of Investcom

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Johannesburg-listed MTN on Tuesday agreed a surprise $5.5bn (£3bn) takeover of Dubai-based Investcom, as telecommunications operators pursue the potential of emerging markets.

The cash-and-shares deal – one of the biggest foreign takeovers by a South African group in recent years – will give MTN a presence in 21 countries in Africa and the Middle East, compared with 11 at the moment, and increase its subscriber base from 23m to 28m.

The combined company will have an enterprise value of $23bn, compared with $15bn for Orascom Telecom, the Middle East’s leading mobile operator. However, it will have fewer customers than Orascom, which has about 30m subscribers.

Africa and the Middle East are among the industry’s fastest growing regions. Phuthuma Nhleko, MTN chief executive, said the countries where the two companies operated had on average just 9 per cent mobile penetration, giving them “very meaningful potential for upside”.

MTN said it had an irrevocable undertaking from Investcom’s controlling shareholder, M1, to accept its $3.85 a share bid for its 70.6 per cent stake. M1 is owned by the family of former Lebanese prime minister Najib Mikati, Investcom’s founders, who will own about 10 per cent of MTN.

Investcom’s London-traded global depositary receipts, which each represent five shares, jumped 24 per cent to $18.75. Shares in MTN initially dropped more than 3 per cent but recovered to close slightly higher on the day at R60.25 (£5.48).

As a result of Tuesday’s deal, Investcom has dropped its planned bid for Millicom International Cellular, another emerging markets mobile phone group. That leaves state-owned China Mobile in pole position to buy Millicom.

China Mobile and other bidders have tabled offers below the $5bn-plus offered by Investcom.

Azmi Mikati, Investcom chief executive, told the Financial Times that being bought by MTN was more attractive than buying Millicom. “We were looking at that acquisition and had put in a non-binding offer,” he said. “We think this transaction makes much more sense for the shareholders of both companies.”

Millicom has more than 9m subscribers in 16 countries in Asia, Africa and Latin America. Both China Mobile and Millicom declined to comment.

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