SENS Note - 25 November 2004

Hunter MTN may fall prey to takeover

Hunter MTN may fall prey to takeover -------------------------------------------------------------------------------- Information Technology Editor CELLPHONE company MTN could find its ambitions to acquire other network operators turning full circle, with MTN itself a potential takeover target for Norwegian operator Telenor. Citigroup Smith Barney, the global wealth management and equity research group that counts both operators as its investment banking clients, has raised speculation that Telenor may take a stake in MTN . In a new report, the group`s analysts say Telenor may sell its current investment in Russia and invest in MTN instead. MTN`s revenue makes it the largest player in central and eastern Europe, the Middle East and in Africa, yet the group`s shareholders do not include any operators from developed markets. Its shares are 18,6% held by MTN executives, with 81% in public and institutional hands. When MTN issued interim results showing revenue of R13,7bn last week, CEO Phuthuma Nhleko said foreign expansion, by winning new licences or acquiring other operators, was a priority. No one from MTN was available for comment yesterday. Citigroup Smith Barney takes a `bearish view` on MTN because of its potential to be acquired by a first-world player. `While clearly we are simply exploring possibilities of such an acquisition, the point remains that European operators are generating massive cash flows, but don`t have growth,` the report says. `For MTN, the next six months remain critical. Depending on where the next acquisition is made, a potential tie-up with a European-based operator with exposure to other emerging markets may be attractive to all parties. `Telenor already has exposure to Pakistan and Bangladesh, and therefore shows a willingness to move into risky areas.` Telenor earns 42% of its revenue from its network investments in Hungary, Ukraine, Denmark and Bangladesh, and will launch in Pakistan next year. `Africa would be the most obvious and preferred area for geographical expansion, given the lower penetration levels. `According to our African telecoms analyst, Rhys Summerton, Telenor could potentially look to acquire controlling stakes in MTN the only African operator without an international shareholder,` the report says. Summerton estimates an investment in MTN would cost about R65,5m, a 20% premium to its current market price. Part of that could come from Telenor selling its 30% stake in the Russian wireless operator, Vimpelcom. Slowing growth in Russia may prompt it to sell its stake in the next 12 months, and invest in the emerging African market for higher returns.