MTN sinks deal for Huge to buy airtime reseller

CELLULAR group MTN has derailed a R511m deal for the Huge Group to buy out a chain of airtime resellers by belatedly exercising a pre-emptive right to acquire the shares itself.

At the centre of the tug of war is Durban-based iTalk Cellular, a distributor of airtime exclusively for the MTN network. MTN already owns 41% of iTalk, and has told its owners, the Bebinchand Seevnarayan Trust, it wants the other 59%.

The trust had already agreed to sell those shares to the Huge Group, and last month the Competition Commission granted approval for that deal.

MTN’s predatory move comes after it declined initially to exercise its pre-emptive rights, then changed its decision as Huge firmed up its offer.

Huge Group CEO Anton Potgieter said its own bid had not collapsed as there was a good chance that the commission would refuse to let MTN absorb iTalk because it would reduce competition in the marketplace.

“It’s not necessarily a done deal. Obviously, if MTN gets approval they will get the shares, so now it’s up to lawyers and the Competition Commission.” Potgieter is talking legal advice on whether to oppose MTN’s bid during the Competition Commission hearings. “There is a good possibility that we will oppose it. It’s anticompetitive because it is closing down the channel, which will impact on consumers.”

However, the Competition Tribunal recently gave Vodacom permission to buy out two small independent airtime resellers, and may not be able to approve that move by Vodacom and then reject a similar move by MTN. The tribunal criticised Vodacom for skirting the real reasons for taking over the resellers, instead of admitting outright that it wanted to eliminate competition and improve its profit margins.

Tribunal chairman David Lewis also criticised Vodacom because the combined effect of previous deals to absorb a succession of independent resellers had given it an extra 20%-30% of all airtime sales in a stealth approach to conquering the market without the authorities realising the compound effect.

Potgieter said the cases were different because Vodacom had bought the service providers as their licences to resell airtime were expiring, ending their business anyway; iTalk’s reseller licence was not expiring, so it a remained a viable competitor in the market.

Potgieter said he believed the authorities might veto MTN’s bid because the operator was likely to lay off iTalk’s 235 staff if it merged the activities with its own.

Last month, when Huge posted its financial results, Potgieter said a substantial amount of future growth would come from talking over iTalk, which runs 11 outlets of its own and trades through a network of nearly 100 dealers. Yet it serves only 2% of SA’s cellphone users and runs 1% of the retail outlets. Huge believed it could boost iTalk’s revenue by 35% a year.

On Friday Potgieter said losing the deal would not be a mortal wound. “It’s an attractive asset that would definitely add value, but it’s not essential. There are some other deals that are potentially more attractive,” he said.

MTN has not disclosed how much it will pay if its bid is approved.

By: Lesley Stones