MTN deal hits snag

Johannesburg - Once again it seems that opposition from government could ruin MTN [JSE:MTN] ’s expansion plans.

This time it is the Algerian government that is unhappy with the cellphone group's plans to buy Orascom, which would make MTN the fourth-largest cellphone group in the world.

The proposed Orascom deal is the first since MTN and the Indian company Bharti Airtel’s merger plans were kyboshed by opposition from both the Indian and the South African governments.

Any deal between Orascom Telecom Algeria and MTN concerning cellphone operator Djezzy is void, and could lead to the licence being withdrawn, declared Algeria's Department of Communication in a statement on Wednesday, according to Bloomberg.

If Orascom wants to sell its Djezzy unit, the proposed transaction should first be discussed with the government, said the department.

On Thursday Orascom stated that it had asked the Egyptian Minister of Foreign Affairs to arrange a meeting between its chairperson and the Algerian premier to discuss the deal.

Africa Analysis managing director André Wills says it is a standard clause in licences for a government to oppose changes in ownership. He reckons the statement is probably the result of diplomatic tension between Egypt and Algeria.

Ties between Egypt and Algeria became strained after riots broke out last year following two qualifying soccer tournaments for the World Cup soccer tournament. Algeria eventually qualified for the tournament and its team members were attacked and injured by Egyptian fans, Egyptian spectators were attacked and the properties of companies, including Orascom, were damaged. Egypt even temporarily recalled its ambassador from Algeria as a result of the tension.

Other analysts believe that the Algerian problems could kill the transaction for MTN, with the authority’s placing of strict restrictions on MTN rendering the assets less attractive.

Djezzi, Algeria's biggest cellphone operator is the crown jewel in the Orascom stable and Algerian opposition will probably mean that MTN will walk away from the transaction.

One analyst says that for the past nine months Orascom has had serious problems with the Algerian government, which has a stake in a smaller telecommunications player competing with Orascom.

Local ownership requirements have been introduced, dividends may not leave the country and the group has had to cough up $596m for "tax arrears" – which it plans to appeal.

MTN has no presence at all in North Africa. Wilson says that Egypt, Algeria and Tunisia would increase its footprint and make it a true African player.