South African telecom analysts predict that MTN?s current negotiations with Reliance Communications (RComm) would meet the same fate as the earlier aborted talks with Bharti Airtel.
?Similar problems will arise? MTN might be the bigger aggressor. It is looking to acquire more than to be acquired. If the deal goes through, MTN might end up paying a bigger premium, which would result in a dilution for MTN shareholders,? says Rajay Ambekar, a telecom analyst at Cadiz African Harvest Asset Management.
Even as the South African economy is widely accepted to be slowing, economists hint that a buyout as big as this one would further weaken the SA rand, which lost 0.5% against the dollar on Monday.
According to SA media reports, analysts such as Michael Keenan, a currency strategist at Standard Bank, concurred. ?If MTN buys Reliance, it will result in a net outflow of foreign exchange. That would obviously be rand negative,? he said, adding: ?The growth and inflation figures this week are going to reveal a nasty stagflation mix. That will further underline South Africa?s negative market fundamentals.?
According to sources, as with Bharti, the contours of the ongoing negotiations entail RComm being bought out by MTN and then becoming the single largest shareholder in the combined entity. Bharti had pulled out of its talks with MTN as becoming a subsidiary of another international telecom company did not sit well with its growth plans.
South African industry experts strongly believe that MTN is unlikely to go up for sale any time soon, and that it would rather acquire an international telecom company. The company?s shares dropped by almost 7.6% on Monday after news of Bharti?s withdrawal from talks was announced.
As reported by FE earlier, since RComm is the Anil Dhirubhai Ambani Group?s flagship company, allowing it to become a subsidiary of another telecom giant looks unlikely, too, given the group?s ambitious future plans.