Africa - MTN and Bharti deals puts smaller operators in play for mergers and acquisitions

[economic times] The expansion of telecom majors MTN Group and Bharti Airtel across Africa is likely to put the continent's smaller groups into play as other multinationals look to shore up their positions. Analysts say the likes of Millicom International Cellular, Portugal Telecom, France Telecom's Orange and Vodafone's Vodacom will now be on the prowl with a view to bulking up their African assets. Paul Booth, director at emerging market research firm Global Research Partners, said he wouldn't be surprised to see acquisitions of small, African operators by any of those firms, which have units or stakes scattered across the continent. "There are a large number of small players.

One questions whether in the long term they've got the capability or skills to survive," he said, adding that it was Bharti's acquisition of Zain that had forced MTN to enter talks to buy Egypt's Orascom Telecom Mobile market penetration in Africa is expected to cross 50 percent during 2010, according to Research and Markets, offering more opportunities for operators looking for expansion in fast-growing Africa. Penetration in Latin America, another emerging market, is much higher at around 80 percent, according to analysts.

"There are a lot of people looking for opportunities in Africa's telecoms market, because Europeans have no growth in their markets," said David Lerche, a telecoms analyst at Johannesburg-based Avior Research. POSSIBLE TARGETS? Unlisted Econet Wireless International, which does business in nine countries in Africa, as well as Europe and Asia, could well be an attractive target for the likes of Millicom, which last month declared its interest in buying more African assets.

"As far as Africa is concerned, we are still seeing opportunities for consolidation because there are too many players in the market," Francois-Xavier Roger, chief financial officer of Millicom, said recently. Another unlisted firm, Globacom, which is Nigeria's second-largest mobile phone operator, could also be a good bet for those aiming to enter Africa's biggest telecoms market. South Africa's Cell C, owned by Dubai-based Saudi Oger and struggling to compete in Africa's largest economy, could be another target.

"I think we will see consolidation in Africa, not so much the profitable guys but the unprofitable ones, like South Africa's Cell C," said Avior's Lerche. PRICE WORRY Analysts say the median enterprise value for telecom assets in Africa over the last few years is seven times earnings before interest, tax, depreciation and amortisation (EBITDA), which would translate to about 5.7 billion rand for Cell C with profits of 812 million rand in 2008.

But buyers' anxiety to keep up with aggressive players like Bharti and MTN could force prices higher. In fact, analysts have said that Bharti may have overpaid in its $9 billion acquisition of the African assets of Kuwait's Zain, and MTN shares have been hit by fears that it may pay too much for Orascom.

"So on that basis, consolidation is a bad thing for buying shareholders like Bharti and it's a good thing for selling companies like Zain," Avior's Lerche said. Even so, potential buyers abound. South African operator Neotel, which is owned by India's Tata Communications, could be a possible suitor. Neotel is looking to boost its market share in South Africa to better compete with rival Telkom.

Warid Telecom, a joint venture business between Abu Dhabi and Singtel Group, already owns Warid Uganda and might be looking to buy more assets in Africa. Emirates Telecommunications Corp (Etisalat) last week raised its stake in Zanzibar Telecom Limited (Zantel) to 65 percent for $16 million, as it pursues its international expansion plans.

MTN, Bharti expansion to spawn African telecom deals