MTN Group to implement Newshelf acquisition

Rudolph Muller

Rudolph Muller is the editor at MyBroadband and covers telecoms and broadband news. Rudolph comes from an academic background, but left the University of...

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In December 2008 MTN and the Government Employees Pension Fund, represented by the Public Investment Corporation (PIC), entered into a memorandum of understanding for the proposed acquisition of Newshelf 664 by MTN from the Alpine Trust (AT), the acquisition and settlement of the funding obligations outstanding to PIC in Newshelf from PIC and the specific repurchase by MTN of the MTN shares held by Newshelf.

MTN advised on Friday that a due diligence investigation in respect of Newshelf has been finalised on behalf of MTN, the approval of the South African competition authorities for the acquisition has been secured and all agreements necessary to implement the proposed Newshelf acquisition were entered into on March 26.

Until December 2008, MTN obtained the majority of its equity ownership points through the approximately 13% shareholding which AT holds in MTN, through Newshelf.

The Newshelf structure was established independently from MTN in 2002, prior to and independent of the promulgation of the BEE Codes, and was always anticipated to unwind in December 2008. Accordingly 34.4 million MTN shares were distributed to the beneficiaries of AT in February 2009 and the trustees of AT are currently in the final stages of unwinding AT.

MTN believes that broad-based BEE participation in MTN has contributed to its success to date and is committed to ensuring its continued support of both the letter and spirit of the Codes through the implementation of a new BEE transaction.

MTN originally planned to implement the Newshelf acquisition and the BEE transaction during the first half of 2009, but in light of the extreme market volatility and uncertainty of current financial markets, MTN’s board determined that it is not in the best interests of the company, MTN shareholders and the potential BEE investors to implement the BEE transaction during the first half of 2009 as originally planned.

Shareholders were informed of the board’s decision on February 18. The board nevertheless remains fully committed to implementing the BEE transaction and is, together with its advisors, actively updating proposals that will better satisfy MTN’s BEE objectives and be in the best interests of MTN’s shareholders.

MTN and PIC have agreed to discuss in good faith, but without any obligation to agree on, the potential participation by PIC in the BEE transaction through PIC making up to 6% of MTN’s issued ordinary share capital (on a fully diluted basis) and a proportionate level of funding available for purposes of the BEE transaction.

The board said it believed that it remains in the best interests of MTN to implement the Newshelf acquisition at the present time. The purpose of the Newshelf acquisition is to facilitate and minimise the dilutionary impact of the future BEE transaction on earnings going forward.

In terms of the Newshelf acquisition, MTN will effectively acquire Newshelf at a discount of approximately 8% to the market value of Newshelf’s MTN shares on 20 March 2009. MTN intends to apply a significant portion of this discount to offer future participants in the BEE transaction an incentive to invest in the BEE transaction when it is implemented.

The Newshelf acquisition is therefore the first step towards implementing the BEE transaction, MTN said.

Through a series of inter-conditional transactions, MTN will acquire Newshelf from AT and then acquire and settle the funding obligations outstanding to PIC in Newshelf in consideration for the issue of 213.9 million new MTN Shares and 787 million rand plus interest in cash. MTN will then repurchase the MTN Shares owned by Newshelf.

The value of the MTN shares to be issued and repurchased has been calculated using the same MTN share price. The net effect of the Newshelf acquisition on the shareholding of MTN would be to reduce the total number of MTN shares in issue by approximately 1.6%.

Newshelf’s MTN shares currently constitute approximately 13% of MTN’s entire issued ordinary share capital. After the proposed acquisition by MTN of the Newshelf Equity, MTN will, through its subsidiaries, hold more than 10% of its total issued ordinary share capital as treasury shares.

A general meeting of MTN shareholders is to be held on Tuesday May 5.