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Orascom Telecom ends talks with MTN Group

Failure of talks leads to renewed speculation about where MTN will look next for growth

MTN had hoped to expand its reach beyond South Africa through a deal with Orascom Telecom.
MTN had hoped to expand its reach beyond South Africa through a deal with Orascom Telecom.

Egypt's Orascom Telecom has called off talks with South Africa's MTN Group, ending speculation about a possible deal that could have made MTN one of the world's biggest mobile operators.

Orascom said in a statement yesterday that it had informed MTN Group of its decision "to terminate discussions in connection with the sale of certain of its operations as a result of the failure to reach a deal." The operator added that the development followed "the failure in talks" between the MTN Group and Weather Investments SpA, Orascom's parent company.

Orascom announced in April that Weather Investments had started talks with MTN Group regarding the acquisition of Orascom or parts of its business.

But the talks soon faltered when the Algerian government said it would block any attempt by Orascom to sell its lucrative Algerian unit, Djezzy, to MTN.  The South African operator is keen to expand its presence in North Africa, and many analysts believe the acquisition of Djezzy would have been crucial to any deal.

The failure of the deal is likely to be a major blow for MTN, which also failed in its bid to tie up with Bharti Airtel last year.

Lindsay McDonald, a consultant for the MENA region at the ICT practice of Frost & Sullivan, said that the failure of the deal was likely to have "a double-edged implication."

"[MTN] shareholders have once again been let down by the lack of a successful deal, and the share price could reflect this opinion briefly," she said. "Frost & Sullivan does not expect this state of affairs to be sustained however, as there is naturally still a lot of value in the MTN share.

"The second impact of this announcement is probably like to be a relief. The passage of time indicated that the discussions were becoming increasingly complicated and taking on governments is not likely to make shareholders comfortable."

She added that while there were "still a couple of investment prospects" open to MTN, the company's shareholders were likely to grow impatient. "There is now likely to be a great deal of pressure on the MTN executive body to deliver new growth streams and revenues for the company," she said.

The failure of the deal could lead to renewed interest from other operators in acquiring Djezzy, and could also rekindle talks between MTN Group and other large emerging market telcos such as India's second biggest mobile operator, Reliance Communications. MTN and Reliance called off a previous round of talks in July 2008.

Reliance has been at the centre of deal rumours since the firm's owner, Anil Ambani ended an agreement not to compete with the businesses of his older brother, Mukesh, opening up the opportunity for Reliance to seek major outside investment in the company.

Girish Trivedi, deputy director, South Asia and Middle East, Frost & Sullivan, said that Reliance had a solid network in India and also had the ambition of moving beyond India.

"I think the strategy is very clear that they will look for opportunities outside India. With Reliance paying a big amount of money for getting 3G licences, I am sure they will be looking for a partner who can bring in both understanding of the market and an infusion of money to help them expand beyond Indian boundaries," he said.