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MTN’s agreement to pay $5.5bn to buy Investcom is destined to create the largest mobile telecoms company in Africa and the Middle East.

The transaction will widen MTN’s footprint from 11 to 21 countries and increase its subscriber base from 23m to 28m, the company said yesterday.

“The geographic spread is very much part of what MTN has been trying to achieve in the past couple of years,” Phuthuma Nhleko, the company’s chief executive officer, said on Tuesday.

MTN said it had an irrevocable undertaking from Investcom’s controlling shareholder, M1 Ltd, to accept cash and shares for its 70.6 per cent of Investcom. M1 is owned by Lebanon’s Mikati family, Investcom’s founders, who will now own about 10 per cent of MTN.

The combined company will have an enterprise value of $23bn, compared to the $15bn value of Orascom Telecom, currently the Middle East’s pre-eminent mobile operator.

Orascom has about 30m subscribers, 2m more than MTN will have after the acquisition is completed.

MTN’s biggest rival in Africa, Vodacom, has about 19m subscribers. Africa and the Middle East are among the industry’s fastest growing regions.

Mr Nhleko said that the combined companies’ countries of operation had, on average, just 9 per cent mobile penetration, giving them “very meaningful potential for upside”.

Neither of the two companies’ current countries of operation overlap. Subject to regulatory approvals, Mr Nhleko said he expected the deal to be concluded by August.

Investcom has franchises in five West African countries and Sudan, and would give MTN a “very contiguous footprint in Africa”, Mr Nhleko said.

International companies have been scrambling to compete for a slice of the African mobile telecoms market, where penetration is less than 10 per cent but growing rapidly.

The South African company already has operations in nine African countries outside its home market, and is due in August to launch a greenfield operation in Iran.

Alongside Iran, the deal announced yesterday will expose MTN to several other potentially risky markets. Investcom, in addition to its franchises in Africa and Cyprus, has operations in Syria, Afghanistan, and Yemen.

MTN’s Mr Nhleko sought to play down potential risk factors, saying that they were “of a political nature”. He added that the company had “thought these issues through” and taken measures to protect itself where appropriate.

Azmi Mikati, Investcom’s chief executive, told the Financial Times that operating in emerging markets had “inherent risk,” but that this was outweighed by their growth potential. “If you operate over 21 countries, you spread the risk,” he said.

Copyright The Financial Times Limited 2019. All rights reserved.

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