While the credit crunch has sent a chill through swathes of the market, telecom firms in the developing world have lost none of their heat. India’s Bharti Airtel Ltd is reported to have made a bid for a majority stake in MTN Group, the No. 2 in South Africa, that would value the company’s equity at $37 billion. While MTN has some plum assets, rivals might do best to watch from the sidelines.
There’s no doubt MTN, with its spread of market-leading positions in Africa and West Asia, is a gem. It is set to increase its subscriber base by 35% this year, and boasts earnings before interest, tax, depreciation and amortization or Ebitda margins above 40%—compared with the 35% average of developed-market players, according to Deloitte. Moreover, its lack of a controlling shareholder makes it an easier target than family-dominated groups, such as Bharti itself.
As a would-be buyer, Bharti has three advantages over more mature rivals. First, plentiful experience rolling out low-cost networks in emerging markets. Second, a hot share price—the group trades at a dizzying 15 times forward Ebitda, according to Reuters estimates. Third, the apparent willingness of banks to provide finance—a major stumbling block for buyers from credit crunch-wracked mature markets.
MTN’s attractive market position might normally draw out rival bidders. But here Bharti’s timing looks opportunistic. France Telecom is already eyeing Scandinavian player TeliaSonera; Deutsche Telekom is reportedly considering a tie-up with Sprint-Nextel Corp. of the US as well as Greece’s OTE; Telefonica Moviles SA is trying to rebuild its stock market rating after past acquisitions. Now looks like a good time for Bharti to indulge its global ambitions.
MTN may still spark a fight. China Mobile has tentatively looked at deals in Africa before, though it has yet to follow through. Even mature players may decide MTN’s scarcity value and access to markets with scant mobile penetration deserve a punt. But with MTN already trading at close to eight times forward Ebitda—near the eyewatering multiples paid in the past for assets such as O2, Telsim and Telefonica Moviles —this may be one for the tigers only.