Mergers, Acquisitions and Financial Results

In May 2007, South Africa's Vodacom has signified its seriousness to acquire a majority stake in NITEL's mobile subsidiary, Nigerian Mobile Telecommunications Limited (MTel), with an offer of $480 million to the shareholders of the company.

But the cash offer made by Vodacom has elicited a counter bid from Alheri Engineering Limited which had formally expressed interest to take up controlling equity in MTel around the same time Vodacom was in negotiations with Transnational Corporation of Nigeria Plc (Transcorp).

Sources close to the deal informed THISDAY that the South African firm is eager to acquire at least 51 per cent of the equity stake in MTel by paying $250 million upfront to the Federal Government for the 24 per cent not taken up by Transcorp when it bought NITEL last year.

The balance of $230 million will be paid to Transcorp in two installments if it accepts to relinquish 18 per cent of its stake in MTel immediately with the option for Vodacom to acquire another 9 per cent from Transcorp within the next three years.

Vodacom, it was gathered, is also committed to injecting additional capital into the underperforming Nigerian mobile firm along with technical expertise under a management contract.

However, industry sources have indicated that Transcorp's effort to offload MTel is rather premature and a lot easier said than done. The company, in the first instance, does not belong directly to Transcorp and the Federal Government, but is a wholly owned subsidiary of NITEL.

By implication, the proceeds from MTel's sale will actually go into the coffers of NITEL, and any profits arising thereof after deducting taxes and interest charges can only be paid in the form of dividends to its shareholders - the Federal Government and Transcorp. Alternatively, the proceeds realised from the transaction can be transferred to NITEL's capital reserves account for the internal use of the company.

NITEL as a distinct entity from MTel may also insist that the latter's indebtedness to it be offset through a capital restructuring exercise (debt-equity conversion) and that its shareholders pass a special resolution to de-merge both firms.

If this occurs, MTel would have to be revalued and all bidders interested in it asked to make higher offers in line with the balance sheet restructuring undertaken for the company.

"Vodacom and any other bidder for that matter would therefore have to be certain that by paying $480 million it will be acquiring Mtel and not NITEL, and all of its liabilities which I am certain the South African firm is not that eager to assume," said one industry analyst.

Irrespective of the intricacies of the transaction, Alheri has made a request to Transcorp that it be given one week to conclude its due diligence on MTel. Once this is concluded, an official of the company disclosed that Alheri is prepared to match Vodacom's bid to the last dollar.

Alheri's bid will however be distinct from Vodacom because unlike its competitor it will not make a deferred offer for any of the company's shares, but will offer to pay for them upfront.

Alhaji Aliko Dangote, the company's owner and chairman also recently disclosed that Alheri is prepared to inject $1 billion if it acquires the company, and that MTel's network capacity will be complemented by the optical fibre network taken over by Alheri Engineering from the former National Electric Power Authority (NEPA), last year.

Alheri was awarded a 3G licence by the Nigerian Communications Commission (NCC) and is banking on the fact that it is a Nigerian firm, understands the local terrain and is sufficiently liquid to inject capital into MTel.

Vodacom is the second largest Pan-African cellular phone network in the continent with 21.5 million subscribers in South Africa , Tanzania , the Democratic Republic of Congo and Lesotho , and recently acquired a licence to operate in Mozambique .

The company has made several failed attempts to enter into the prolific Nigerian market through bids for former Econet Wireless Nigeria Limited which it managed for a brief period before withdrawing from the country citing corporate governance issues after the Econet board had approved the payment of a brokerage fee to some investment firms.

Vodacom later made a second attempt in 2005 to acquire Econet which it had re-branded Vee Networks Nigeria Limited before its unceremonious departure the year before.

Source: This Day