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Of second chances, strange logic, share dealings and votes

US sanctions could give MTN a second crack at Ethiopian telecoms licence, CompCom confounds with Burger King decision, share dealings at Sibanye-Stillwater … and it seems something is up at Mpact.
It ain’t over til it’s over, and two weeks is a long time in political-economy terms. Image: Shutterstock

It looks as though the apparently attractive Ethiopian telecommunications market might still be wide open for MTN.

Just over two weeks ago the Ethiopian government announced that the MTN-led consortium had failed to secure the first of two licences that were up for sale. The winning bid was led by the UK’s Vodafone and included Kenya’s Safaricom, Sumitomo of Japan and, crucially, the Washington-based International Development Finance Corporation (DFC). MTN’s consortium included China’s Silk Road Fund.

The DFC’s contribution involved a $500 million loan for the winning bid, which at $850 million was a full $250 million or 42% more generous than MTN’s $600 million.

MTN CEO Ralph Mupita was understandably disappointed by the outcome of the first tender but has indicated that the group would be interested in making a pitch for a second telecommunications licence that is expected to be announced by the Ethiopian government at some stage in the future.

However, proving that two weeks is a long time in political-economy terms, a recent decision by US President Joe Biden might result in the upending of that first tender decision.

A few days after Ethiopia announced the recent telecoms tender award, the Biden administration announced that it was imposing sanctions on Ethiopia because it had “taken no meaningful steps to end hostilities” in the six-month war in the Tigray region.

Mupita and his fellow consortium members will be watching closely to see what happens next. According to a recent interview on independent multi-media organisation The China Africa Project (CAP), the sanctions might force the DFC to withdraw its loan facility.

CAP’s Eric Oleander’s excellent interview with Mupita describes the US versus China dimension to the tender. As an aside, he explains that a condition of the DFC funding was that no Chinese technology could be used.

Read:

But of interest to MTN shareholders is that Oleander says if the just-imposed US sanctions force the DFC out and the Vodafone consortium is unable to secure alternative sources of funding, the tender might have to be reopened. That, no doubt, would delight Mupita’s team and the group’s shareholders who will be watching developments closely.

Burger King

Meanwhile back in SA, the Competition Commission has been flexing its muscles and, seemingly, not to everyone’s liking.

Days after announcing it was recommending prohibition of Cashbuild’s proposed acquisition of The Building Company from Pepkor, the commission stunned the market with its decision to recommend the prohibition of the sale of Burger King SA franchise to a US private equity company. The Cashbuild prohibition was, reasonably enough, based on concerns about market concentration.

Much less reasonable was the decision to recommend prohibition of the Burger King deal on the grounds of the resulting dilution of black ownership in the business.

News of the decision promptly saw the price of Grand Parade Investments, which owns the franchise, slump towards a 12-month low.

Ironically, prohibition of the transaction would not only see SA losing out on much-needed foreign investment but would significantly and adversely impact the black shareholders the commission seems intent on protecting.

Listen to Dudu Ramela’s interview with Bravura’s head of corporate finance Soria Hay (or read the transcript here):

The commission’s decision has to be confirmed, or rejected, by the Competition Tribunal which means there will be an excellent opportunity for the competition regulator to air its logic on the matter; and for Grand Parade Investments to explain the potential harm its shareholders might suffer.

Sibanye-Stillwater

Over at mining group Sibanye-Stillwater, CEO Neal Froneman announced a possible R9.6 billion commitment to a share repurchase agreement on the very same day that the group’s lead independent director Rick Menell was selling R4.4 million of his Sibanye shares.

Board chair Vincent Maphai was obviously singing from Froneman’s hymn sheet and, also on June 1, bought R6.9 million of Sibanye shares.

Froneman, who reckons the mining sector is about to enter a “supercyle”, has done remarkably well with his acquisition-led growth strategy.

Read: Potential mining supercycle on the way – Froneman (May 14)

If he is anywhere near correct then buying back Sibanye shares at around current prices looks like an excellent investment.

But there might be some who are inclined to think back nervously to Anglo American’s hugely expensive share repurchase programme implemented around 2007/9. That turned out to be the peak of the cycle.

Mpact

Annual general meetings are frequently rather dull affairs, but not always. And even if the actual meeting is a bit dull, trawling through the voting can turn up interesting questions – such as, in this case, What is going on at Mpact?

The group, which is the country’s biggest paper and plastic packaging and recycling business, has undergone major changes in shareholders over the past 12 months.

Read: Mpact has had a whole lot of share action going on (Feb 12)

Currently the single largest shareholder is Caxton (the indirect controlling shareholder of Moneyweb) which built up a sizeable stake late last year.

At the time Caxton chair Paul Jenkins described Mpact, which has had no controlling shareholder since it was unbundled from Mondi in 2011, as a “fabulous business” adding that they had no wish to be drawn over the 35% line.

“We like the management team and are certainly not looking to interfere,” said Jenkins.

Judging by the voting at last week’s Mpact AGM somebody is looking to interfere.

An unprecedented 44% of shareholders voted against the re-election of chair Tony Phillips and 59% voted against the remuneration policy and the remuneration implementation report.

Also, almost unheard of, shareholders have not given the necessary authority for the board to repurchase shares – something it has been doing quite vigorously; 36.2% of shareholders voted against the necessary special resolution.

Something will surely give in the coming weeks.

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COMMENTS   5

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Shouldn’t South Africa be applying sanctions on Ethiopia if the US (and soon UK and EU) have? Considering SA are allies of the US and UK, this would make sense? How do the agreements between countries on sanctions work?

SA will be stupid to apply sanctions on Ethiopia, how will we make money if the US and EU don’t care about SA?

The US does nothing for SA.

It is not a huge leap from:
that Burger King decision (that local BEEE Firm can’t sell to a foreign entity because black ownership diluted;
to saying any acquisition that does not increase black ownership is not permitted.

And from here the incentive to move big companies offshore opens up again. Discounts on all SA companies due to illiquid market where you are forced to sell at a discount every time.

And from here government has to act to prevent offshoring… and from there the discount increases…

I always appreciate Anne Crotty’s weekly wrap. Helpful information/ thoughts/ analysis that is not available elsewhere. Thanks Anne!

End of comments.

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