EGYPTIAN cellphone group Orascom revealed yesterday for the first time the price MTN was prepared to pay for its lucrative Algerian unit, Djezzy, even as it confirmed talks with the Algerian government over the same asset.
MTN is in takeover talks with Orascom.
Orascom Telecom’s executive chairman, Naguib Sawiris, told Reuters that MTN had offered $7,8bn for Djezzy, the biggest and most profitable unit in its stable.
A law passed about two years ago by the Algerian government gives the state first right of refusal on a 51% stake in Djezzy in the event of a sale.
Mr Sawiris said yesterday that he believed a meeting between the Algerian and Egyptian presidents at a gathering in France this week would improve the atmosphere around the talks. “I hope they (the Algerian government) will negotiate in good faith,” he said.
Asked about the status of the talks with MTN, widely expected by analysts to exclude Djezzy, Mr Sawiris said: “It’s not yet settled, we’ve been in discussions.”
Djezzy was the main component in a possible broader deal that would have made MTN the world’s third-biggest cellphone company if all of Orascom’s assets were included.
The Algerian veto threw doubt on the chance of a larger deal going through, but talks over the sale of some Orascom assets to MTN have nevertheless continued.
Yesterday’s confirmation of talks on a deal with the Algerian government has had analysts speculating about MTN’s options. This could include MTN being allowed to buy a minority stake in Djezzy and the Algerian government a majority one.
André Wills, MD of Africa Analysis, said nothing was impossible. “It all depends on what MTN stands to benefit and also what the strategy of the Algerian government is.”
Spiwe Chireka, an analyst at Frost & Sullivan, said that should the Algerian government reach an agreement to buy Djezzy, it might need a partner to run the business.
“It would be a national asset and the government would probably want to keep it that way. But they might look elsewhere for assistance,” Ms Chireka said.
An institutional investor in MTN, who spoke on condition of anonymity, was not convinced a deal between MTN and Orascom would materialise, especially if the Algerian government and Orascom were unable to agree on a price.
“Orascom’s parent company is heavily indebted and the government will not agree to pay a premium. The government would most likely want to buy the shares at a lower price. If the deal does not go through, maybe they might allow Orascom to sell to whoever it wants to sell to but that is highly unlikely,” he said.
Orascom has $8,6bn in liabilities and $10,9bn in assets for the year to end-December. It has assets in 10 countries including Burundi, Tunisia, Pakistan, North Korea and Zimbabwe. But the jewel in the crown is Djezzy, which accounted for half of Orascom’s $2,1bn in earnings before interest and tax last year.
Although MTN and Orascom have not specified which operations are for sale, analysts have said that without Djezzy, which had a market share of about 60% and 14,6-million customers at the end of last year, MTN would come up short in a bid for much-needed expansion.
Ms Chireka said major opportunities were no longer available in Africa, so MTN was likely to “stick it out until the negotiations between Orascom and the Algerian government are finalised. This will be worthwhile if it gets Djezzy.”
MTN is Africa’s largest cellphone operator by subscribers. But it relies on just a handful of markets in Nigeria, SA and Iran for the bulk of its revenue.
MTN’s share price lost 147c to R105,52 yesterday.
