Tuesday, 16 October 2018

IFR Mid East 2006 - M&A case study - MTN

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The Dubai International Financial Centre's recently established stock exchange has experienced its first takeover, the acquisition of Investcom by MTN Group. By Bruce Embley, partner, and Michael Horman, associate, Freshfields Bruckhaus Deringer, lawyers to MTN.

The stock markets of the GCC, and in particular the United Arab Emirates, look set for strong expansion over the next few years as the GCC builds on recent high oil prices, increasing wealth and the opening up of capital markets. To tap into this growth and develop its own capital markets and position in the GCC, the United Arab Emirates has recently established a new free economic area, the Dubai International Financial Centre (DIFC) to entice Western-style capital markets and investment. Although takeovers of listed companies are second nature in the mature Western capital markets, the takeover of Investcom LLC (Investcom) by MTN Group set a landmark in the history of the DIFC, its stock exchange, the Dubai International Financial Exchange (DIFX) and for telecommunications companies in the Middle East.


The DIFC is a free zone established within Dubai, with a stated intention to develop into an international financial centre with the same status as New York, London and Hong Kong. Geographically, it believes it has a real advantage, being mid-way between the time zones of London and Hong Kong.

The DIFC has its own financial services authority and regulator, the Dubai Financial Services Authority (DFSA), registrar of companies, and court, the DIFC Court. Although certain laws of the United Arab Emirates continue to apply in the DIFC, civil and commercial laws for the DIFC are prescribed by the DFSA and are available from the DFSA's website at The DFSA has prescribed detailed rules to regulate takeovers and the issue of securities in the DIFC, based generally on Western European regimes. The takeover of Investcom applied these rules for the first time.

The DIFX, the DIFC's international stock exchange, was launched in September 2005 and has a stated intention to become the leading stock exchange between Western Europe and East Asia. Unlike a number of stock exchanges in the Middle East, there are no restrictions on the level of ownership in shares by international investors. At the time of writing, there were 14 securities listed on the DIFX, including Investcom. Further information on the DIFX can be obtained from its website at

Investcom and MTN Group

Investcom is a company registered in the DIFC. In October 2005, it went public with a primary listing on the DIFX and a secondary listing on the London Stock Exchange of Global Depositary Shares (GDSs), each of which represent five ordinary shares in Investcom.

Investcom is an international provider of mobile telecommunications services with operations in Africa, the Middle East and Europe. As at December 31 2005 Investcom had a total of about 4.9m subscribers, revenues of approximately US$903m and Ebitda of US$396m.

MTN Group is one of the largest GSM operators in Africa. It is listed on the Johannesburg Stock Exchange and has more than 23m subscribers across the African continent, where it provides cellular, satellite and internet access services to 10 African countries, and plans to launch its operations in Iran in the second half of this calendar year. MTN reported revenues for the nine months to December 31 2005 of US$4.2bn and Ebitda of US$1.7bn.

MTN Group and Investcom together will create the clear leader in telecoms in Africa and the Middle East with operations in 19 countries and the commencement of commercial operations in Iran and Guinea Republic expected in the second half of 2006. This is in line with MTN Group's stated vision to be the leading provider of telecoms in emerging markets.

The takeover of Investcom by MTN Group consequently not only proved a landmark for the DIFX as the first public takeover, but a landmark for the telecommunications industry in Africa and the Middle East, creating the largest telecoms company in the area.

The offer and its financing

The boards of Investcom and MTN Group announced the recommended offer for Investcom on May 2 2006 to be undertaken by a Mauritian wholly-owned subsidiary of MTN Group. The offer valued Investcom at US$5.526bn, a premium of approximately 27%. It included a share alternative whereby Investcom shareholders (other than certain restricted shareholders) were able to elect to receive shares in MTN Group (listed on the Johannesburg Stock Exchange) as an alternative for up to about 36% of the cash consideration that would otherwise be receivable under the offer.

The offer was made subject to certain pre-conditions, which related to the obtaining of certain regulatory approvals, and the absence of significant conditions or obligations imposed by the regulatory authorities in Investcom's four largest operating markets. These pre-conditions were satisfied or waived by the time the offer was made. However, the offer was still made subject to certain conditions, which are common in UK style takeovers, including achieving acceptances of at least 75%, approval of the transaction from MTN Group shareholders as required by the Johannesburg Stock Exchange listing requirements and the approval of the Johannesburg Stock Exchange to list MTN Group shares to be issued as part of the offer.

The offer was financed through internal resources, the issue of shares in MTN Group pursuant to the share alternative and through a bridge facility provided by Deutsche Bank AG and Standard Chartered Bank of about US$3.85bn. It is MTN Group's stated intention to refinance this bridge credit facility within six months from the proceeds of a mix of funding, potentially including local and international bank financing and funding from the debt capital markets.

Investcom shareholders

Unusually for companies listed on Western stock exchanges, but more usual for companies listed in the GCC and Asia, prior to the takeover Investcom was controlled and operated by one family, the Mikatis, through their private company M1 Limited. Prior to the transaction, M1 held about 70.6% of Investcom's existing issued ordinary share capital. To assist the successful completion of the takeover, M1 provided an irrevocable undertaking to accept the offer to MTN Group. M1 also provided certain warranties to MTN Group as to Investcom's status and business.

The remaining 29.4% of Investcom's existing issued ordinary share capital was divided among certain private investors and Bank of New York, which acted as the depositary for Investcom GDSs listed on the London Stock Exchange and DIFX. Certain offers for companies with listed global depositary shares or similar securities involve a direct offer for both the ordinary share capital and the listed GDSs or similar security. However, the offer for Investcom was only made for the ordinary share capital of Investcom. Holders of listed Investcom GDSs were able to provide an instruction to Bank of New York to accept the offer by tendering the Investcom shares held by Bank of New York underlying the investor’s Investcom GDSs into the offer.

Conducting an offer in the DIFC

Takeovers in the DIFC are principally regulated by the Takeover Rules, prescribed and overseen by the DFSA. As these rules had never been applied before the takeover of Investcom, th e takeover involved new ground for both the bidder and the DFSA.

The Takeover Rules - The Takeover Rules are prescribed by the DFSA under the DIFC Markets Law 2004 and set out the procedures for and obligations of persons in respect of a takeover of a DIFC reporting entity, including companies listed on the DIFX. The Takeover Rules set out the general principles for the conduct of takeovers in the DIFC, which relate to the equal treatment of shareholders and classes of shareholders, adequacy of time and information to be provided to shareholders to enable them to make a proper consideration of the offer, avoiding the creation of false markets, and avoiding the oppression of minorities.

In accordance with Western European style takeover regimes, the Takeover Rules include detailed rules that govern most aspects of a takeover, including the approach to the target and initial announcements, restricted dealings during an offer period, mandatory offers, the terms of voluntary offers, conduct during the offer period, offer timing and revising offers, offer documentation and restrictions on a follow-up offer within 12 months. The Takeover Rules also provide particular rules that deal with partial offers, profit forecasts and asset valuations.

Offer timing - The timetable for an offer on the DIFC is broadly similar to a UK takeover timetable. The offer document must be posted within 21 days of an announcement of a firm intention to make an offer, and the offer must be open for at least 35 days following posting. The offer must not become unconditional as to acceptances after the 67th day after the offer document is posted and all conditions must be fulfilled within 21 days after the first closing date or the date on which the offer becomes unconditional as to acceptances.

As with a UK takeover, the bidder must pay the consideration within 14 days of the later of the offer becoming or being declared wholly unconditional and the acceptance of the offer. The compulsory acquisition of shares not acquired under an offer is also permitted by the DIFC Companies Law if 90% of the shares the offer is made for are acquired by the bidder.

The target is required to advise its shareholders within 21 days of the offer document being posted, and may only publish information after day 46 with DFSA consultation. Since the offer for Investcom was recommended by the board of directors of Investcom, the offer document posted by MTN Group included Investcom's advice to its shareholders and the other disclosures required of Investcom by the Takeover Rules.

Offer announcements and documentation - The Takeover Rules specify the announcements that a bidder is required to make and the required contents of the offer documentation. In accordance with the Western European style of the Takeover Rules and other laws of the DIFC, the offer announcement and offer documentation were approached by MTN Group as a Western European-style takeover and in particular based on UK-style documentation and prepared only in the English language.

Offer terms - As with Western European-style takeover regimes, the Takeover Rules do not specify particular terms of an offer. This enabled MTN Group to base the terms of the offer, conditions and pre-conditions to the offer set out in the firm offer announcement and offer document on a UK-style offer. Consequently, the offer for Investcom included a share alternative and various conditions, including a 75% acceptance condition.

The DFSA - The Takeover Rules are prescribed by the DFSA and the DFSA has the responsibility for overseeing the implementation and enforcement of the rules. The DFSA may waive or modify the rules, has the power to enforce the rules through the DIFC Court or the Financial Markets Tribunal and is entitled to fees from bidders at the time an offer document is filed with it, equal to up to 0.05% of the offer value. Although offer documents must be lodged with the DFSA at least 24 hours prior to posting, the DFSA does not approve offer documents.

As the first application of the Takeover Rules, the offer for Investcom provided the first real test for the DFSA and its new regime. As there was no certainty of the DFSA approach to the Takeover Rules, MTN Group engaged with the DFSA on a number of points and received certain waivers from the DFSA, including a waiver to allow the offer document to be posted after 21 days if certain pre-conditions to the offer had not been fulfilled. The DFSA was extremely professional, responsive and helpful to ensure that this landmark transaction proceeded as smoothly and efficiently as possible.

Securities rules - The offer for Investcom included a share alternative whereby shareholders could elect to receive MTN Group shares instead of cash. The offer of securities in the DIFC is principally regulated by the Offered Securities Rules, which generally require a prospectus for the offer of securities. However, there is an exemption for the issue of securities made in connection with a takeover offer.


The Dubai International Financial Centre has taken another step towards joining the international capital markets with its first takeover: the successful takeover of Investcom by MTN Group. Takeovers in the DIFC have been given a Western European starting point, giving international investors confidence and familiarity as to how future offers will be regulated. We expect other regulators in the GCC to have paid particular attention to this transaction, and it would not be too surprising if, with time, they decided to make changes to bring their own takeover regimes into line with the DIFC template as further evidence of the seemingly irrepressible march towards globalisation.

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