ALTECH, ECONET TAKE AIM AT BIG GUNS

Mergers, Acquisitions and Financial Results

Altech and cellular network operator Econet Wireless have confirmed the creation of a joint telecoms venture, valued at R1bn, which is destined to bring Altech into direct competition with MTN and Vodacom.

Altech will put $70m into the new company, and Econet will contribute its operations in various countries, including Nigeria, Botswana, Lesotho, Kenya and a licence it holds in New Zealand.

Econet CEO Strive Masiyiwa will first use the cash to increase Econet’s stake in those various networks, before tackling opportunities in other countries in partnership with Altech. But the marriage has baffled some analysts.

“Most people are rather perplexed,” said one. “I don’t think Econet is a company of substance. Its operation in Botswana is tiny, its new operation in Kenya will be nothing without a massive amount of money, and New Zealand is still a pipe dream,” he said. “This also means Altech is getting involved in networking, where it hasn’t any experience, and going up against MTN and Vodacom with 10 years of experience.”

In Nigeria, Econet holds 5% of a cellular network, and is battling to raise its stake and prevent Vodacom from buying the majority interest. Altech CEO Craig Venter said buying into Econet was still well worth doing even if Masiyiwa lost out to Vodacom in Nigeria, although that was potentially the most lucrative of Econet’s activities.

Another concern is that the Competition Tribunal will soon rule on whether to allow Altech’s proposed R559m acquisition of the smartcard company, NamITech.

MTN and Vodacom are two of NamITech’s biggest customers. So if Altech acquires NamITech and enters the cellular network market with Econet, it will be a direct rival to two major customers.

Venter acknowledged the Econet deal would initially dilute Altech’s earnings, since Econet’s attributable earnings hit just $4,3m for financial 2003, and it continually needs extra cash to support its operations.

But Venter argued that once Altech had helped Econet make the up-front investments needed to build a network, the profit to be reaped as a cellular operator would be substantial.

Venter also insisted that Altech as a whole would benefit, as its various divisions would be able to sell their technologies and services to Econet in several countries.

Venter has long been itching to spend Altech’s cash pile of R1,4bn, and had cited its telecommunications division as a key growth point. If the NamITech acquisition is also approved, the two moves will soak up about R1bn and leave working capital of about R400m.

Econet’s lack of capital means that it holds only a minority in each network that it runs.

“We have two simple strategies going forward,” said Masiyiwa. “We want to establish control of our existing operations to have a minimum of 51% in all those operations. Then we will continue to develop new opportunities.”

Venter agreed there were plenty of opportunities to be addressed together, and not only in Africa.