MTN Open To New Acquisitions But Opportunities Are Few

Sifiso Dabengwa, CEO of MTN Group , has said that the company is considering spending US$4-8bn on acquisitions and is looking for targets in Africa, the Middle East and South East Asia, reports Reuters. BMI analyses MTN's new strategy, which may be hamstrung by the dearth of appealing acquisition opportunities.

Dabengwa , speaking at the Reuters Africa summit held in Johannesburg in April, also stated that growth through M&A was still an important part of MTN's strategy. MTN previously ruled out new acquisitions following its failed bid to acquire Egypt's Orascom Telecom in 2010, deciding instead to grow its existing operations and pay dividends to shareholders.

Iran And Syria Drive New Strategy

There could be a number of reasons for MTN's change of strategy. However, it appears to BMI that the most probable reason is the company's likely exit from its troubled operations in Iran and Syria. Dabengwa has said that MTN would exit its Iranian operation if the US government decides to impose sanctions on the business. Furthermore, the company is still locked in a lawsuit at a US court over Turkcell's allegation that it used corrupt practices to win the Iranian operating licence. Meanwhile, the security situation in Syria appears to be worsening, putting MTN's operation in that country in an increasingly precarious position. BMI notes that Iran and Syria are key markets for MTN in terms of subscriptions and revenue growth considering the sizes of their populations and economies relative to most of the company's other markets. We believe MTN's new acquisition strategy aims to offset any impact from a forced exit from either or both markets.

Iran And Syria Are Key Markets
MTN Major Markets by Revenue Contributions (LHS) And Subscriptions Contribution (RHS), FY12

Quality Targets Are Few

MTN has set its sights on targets in Africa, the Middle East and South East Asia. However, quality targets are few and far between. The privatisation of state-owned NetOne in Zimbabwe could be an opportunity for MTN, but the Zimbabwean government is yet to take any significant step towards starting this process. YU Mobile in Kenya could also be a target when India's Essar decides to exit. However, the operator is the smallest among four in a market with a dominant player, a position from which MTN is not used to operating. Another possible target could be Etisalat's Atlantique Telecom. However, MTN already has a strong position in two markets - Côte d'Ivoire and Benin - in which the operator is present. BMI had argued that Maroc Telecom would be a good fit for MTN, but the operator appears to have ruled itself out of the bid for Vivendi's 52% stake in the Morocco incumbent.

Arguably the most attractive prospect for the operator is the bid for two new mobile licences in Myanmar. MTN is among more than 15 candidates remaining in a process that will eventually produce only two winners. However, it faces very stiff competition from other leading global and regional operators keen to enter the market, including Bharti Airtel, Vodafone Group, China Telecom, France Télécom and Ooredoo. Myanmar, a country of 60mn people with an underdeveloped telecoms sector and strong prospects for rapid economic growth on the back of ongoing economic and political reforms, seems to be the perfect market for MTN to expand into and we believe the operator is putting much effort into its bid.

BMI will closely monitor MTN's consolidation strategy, which could see the operator enter new markets or exit one or more of its existing operations. MTN has established itself as a major player in the telecoms market, with consolidated revenue of more than US$15bn and a subscriber base of almost 190mn at the end of 2012, even though most of its operations are based in frontier markets in Africa and the Middle East. We believe the company's consolidation strategy aims to help it maintain that status.

This article is tagged to:
Sector: Telecommunications
Geography: Iran, Africa, Iran, Kenya, Morocco, Myanmar, Syria, Zimbabwe, Africa, Africa

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