Bloomberg reports MTN Group is close to buying Nigerian owned Visafone Communications Ltd in a deal that essentially ends the CDMA business in Nigeria.
MTN Group Ltd. has started the process of buying closely held Visafone Communications Ltd. of Nigeria, as it seeks to expand in its largest market, according to two people familiar with the matter.
Lagos-based Visafone is a wireless network provider founded in 2007 by Jim Ovia, a Nigerian businessman who also created Zenith Bank Plc. The people asked not to be identified because the deal has yet to be announced. They didn’t give the value of the transaction.
MTN, Africa’s biggest mobile phone company, has been exploring acquisitions as it seeks to boost revenue from data outside South Africa, where Vodacom Group Ltd. has more subscribers.
Why are they selling
Weak Financial Muscle – Industry sources reveal to Nairametrics that the CDMA business has been a drain pipe on the resources of Visafone. The business is essentially capital intensive requires billions of naira in capital expenditure to compete with the more popular and profitable GSM business. Even at that, they probably not strike a dent on GSM operators who posses a cash pile that continues to be replenished by millions of subscribers maintained on their network.
Competition – For the CDMA businesses, the deal hasn’t always been about competing with GSM operators on the mobile communications landscape. They for years had been the early movers in the mobile data business (remember Starcomms) and cornered a sizeable market share earlier on. However, the GSM operators with deep pockets, having realised how lucrative this business is, along with its growth prospects have poured in hard cash into advertising and promotions thereby snuffing out the life of what remains for CDMA companies. Add Internet service providers (ISPs) to that list and what you have is a death blow.
Loans – Zenith Bank’s 2014 annual report also shows Visafone is owning it a sum of N345million which could likely be at the risk of not being paid or serviced adequately. This also excludes other loans with other banks locally or abroad. With competition about to snuff them out, a deal with MTN makes a whole lot of sense.
Why is the deal good for MTN
Growth prospects – A recent research suggest mobile data will grow at CAGRs of 16.0 per cent, over the 2014-19 period to reach $3.8 billion . The research also suggest, the top two operators, MTN Nigeria and Airtel Nigeria, which provided fixed-line, mobile and Internet services, accounted for 68.0 per cent of overall service revenue in 2014.
Consolidate revenue – MTN Group 2014 results from its Nigerian operations also showed Data revenue continued to grow strongly, increasing by 28.3% to contribute 18.6% of total revenue at year-end. This was mainly a result of the 18.1% increase in data users, increased smartphone penetration and the introduction of products such as the 4.5G smartphone data plan. Also, in Zenith Bank’s 2014 annual report, the Bank paid a total of N 364 million to Visafone Communication Limited for provision of telecommunication services (2013:N 352 million). It is likely such deals exit with other corporates helping MTN make in roads into the corporate sector markets and consolidating on its revenue streams.
Economies of scale – NCC data also suggest Visafone had about 153,059 subscribers as at January 2015 representing a mere 4% growth year on year. On paper that is no threat for a behemoth like MTN, however the acquirer could leverage on Visafone’s operations, brand and network infrastructure.
No amount has been mentioned yet for this deal, and we will be watching it closely.