Mergers, Acquisitions and Financial Results

Cellular operator MTN has shown its hand in a multibillion-dollar bidding war for pan-African cellular company Celtel, claiming its $2,67bn offer was unfairly trumped by a Kuwaiti rival.

MTN yesterday won permission from a UK high court to examine documents which it claims prove Celtel made a legally binding agreement to accept its bid.

MTN says its $2,67bn offer was agreed with legally binding undertakings on March 17, yet Celtel accepted a $3,3bn bid from Kuwait's Mobile Telecommunications Company (MTC) on March 29.

Yesterday MTN won permission to access the terms of Celtel's shareholder agreements in an effort to prove that Celtel's shareholders - including chairman and majority owner Mohamed Ibrahim - were legally committed to accept its bid. MTN needs the documents to support its plans to file a breach of contract claim against Celtel and Ibrahim.

If MTN does claim a breach of contract it will also need to seek a temporary injunction to prevent any Celtel shares from being sold, since Celtel has said it has no intention of putting the deal with the Kuwaiti operator on hold.

MTN is already Africa's largest operator in terms of revenue and profit. Although Celtel is about a quarter of its size in revenue and subscriber numbers, it is active in 13 countries. A takeover would give MTN a presence in 18 countries, and since many countries where Celtel operates have a cellphone penetration of just 5%, the potential for growth is enormous.

The court action appears to have taken Celtel by surprise, with Celtel's QC, Anthony Grabiner, telling the court MTN's request was a "fishing expedition" taken to destroy the deal with MTC.

Celtel communications manager Martin de Koning said: "We were in the process of an initial public offering earlier this year and in the run-up quite a few interested parties discussed offers. These offers were considered by the board and we proceeded to close a deal with MTC."

Celtel's board had weighed up several offers and recommended the best to shareholders, but De Koning said he could not comment on whether any offers had gone further than the others before the Kuwaiti bid was accepted.

The previously undisclosed bidding war explains why MTC was so willing to pay a premium. Until now, Celtel directors have said that MTC offered a high price to persuade them to accept a private deal rather than list on the London Stock Exchange with a secondary listing in Johannesburg. Now it is clear that the Kuwaitis had to bid generously to beat off MTN.

Actis, a South African equity investor, holds 9,3% of Celtel. Actis partner Jonathan Bond, who sits on Celtel's board, declined to comment yesterday. Old Mutual and African Merchant Bank also hold small stakes in Celtel.

MTN did not issue a cautionary notice prior to bidding for Celtel, but has a permanent stated policy of aggressive growth through acquisitions or by acquiring new licences to expand its presence throughout Africa.

Its results for the six months to September last year show it has the cash to do that, with reserves of R3,3bn.