MTN Group yesterday unveiled plans for a long-awaited black economic empowerment (BEE) deal that will see South Africa's second-largest cellular network operator sell a stake of up to 4 percent in the listed holding company to black investors. The transaction is worth R8.1 billion.
The proposed vehicle, dubbed MTN Zakhele, represents another significant milestone in a process aimed at increasing the involvement of black people in the economy since the demise of apartheid 16 years ago.
For MTN Group chief executive Phuthuma Nhleko, the BEE transaction potentially marks one of his swansong acts. He is due to retire from MTN - which is Africa's largest cellular company - at the end of March next year.
Rival Vodacom announced its black empowerment deal in 2008, leaving MTN as the only major telecoms group yet to do a broad-based BEE deal. Under the proposed deal, MTN will gain effective indirect black ownership of up to 29.1 percent in its South African operations.
These local operations make up 22.9 percent of the value of MTN Group, which also has major operations in Nigeria and Iran.
Nhleko said in a statement that the MTN Zakhele scheme would augment many empowerment initiatives undertaken by MTN to date. These included the Asonge scheme, facilitated by the National Empowerment Fund three years ago.
Last year MTN announced its intention to use a portion of MTN shares previously owned by Newshelf 664 to facilitate a new BEE transaction. Newshelf, which was unwound last year, was an entity through which MTN received most of its black investor equity ownership until December 2008.
"The implementation of this MTN BEE transaction was delayed due to severe constraints in financial markets at the time of the Newshelf unwind," MTN said.
The new BEE deal will be the largest such transaction on record for a South African telecoms company. MTN will offer shares to black investors at R107.46 each, a 2.3 percent discount to Wednesday's closing price. The deal is expected to cost MTN and its shareholders about R2.3bn.
With South africa now a mature market for MTN, the company structured the BEE deal in such a way as to give black investors exposure to growth from its diversified operations.
The fact that MTN is only now able to announce its BEE deal comes as no surprise, since the company has been preoccupied with making acquisitions in new markets, beyond its core markets of South Africa, Nigeria and Iran.
In what amounts to a strategic shift just months before Nhleko's departure, the group said yesterday that there were fewer acquisition opportunities left in emerging market telecoms sectors and it would consider options to return more cash to shareholders.
A major setback for Nhleko, who has been chief executive since 2002, has been the recent failure to complete four deals, including a planned takeover of the Algerian unit of Egypt's Orascom Telecom. Talks collapsed last month.
Abdul Davids, the head of research at Kagiso Asset Management, said: "I think we've finally seen the right move."
Prospective investors will be invited to subscribe for shares at R20 a share. The BEE deal is expected to run for a duration of six years from August 30, the date of implementation.
MTN's shares rose 2.7 percent to R113.05 yesterday.
He will be missed at MTN for sure. He was the driving force behind MTN's expansion into Africa.
