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Tuesday, July 04, 2006

Chinese Retreat from African Lemons

So the Chinese have pulled out of the deal with Millicom. I don’t believe for one second that China Mobile were struggling to raise the finance. In my opinion that means they had second thoughts about the price they were bid in the auction and possibly were frightened of “winner’s curse”.

I’m not sure what Kinnevik’s strategy is going to be going forward but the African Assets seem a little ugly to me.

Millicom in Africa

The bulk of the population is in the Tanzanian and DR Congo networks: in both countries Millicom seem a decent third behind Vodacom and Celtel. The obvious purchaser for these assets in MTN, but they may be suffering from indigestion consuming Investcom. Ghana seems an interesting asset but the time might not be right for Vodacom to move into West Africa, especially if they have to purchase the “just out of war” Sierra Leone asset. Senegal, although French speaking, could also be an interesting addition to the portfolio of any of the Big 3. I don’t think Chad would be at the top of the list of anyone’s shopping list. Mauritius would be a real nice location for Vodafone, especially for executive holidays (sorry, important business meetings) although it might fit in more with SFR’s Reunion asset than the African Vodacom and probably wouldn’t offer the growth of the African mainland assets.

Overall, Millicom’s African Revenues in 1Q 2006 was US$67m with Operating Profit of US$20m. I suspect a lot of this profit is from Mauritius given the maturity of the operation, penetration in a small geographical area and relative wealth of the country compared to mainland Africa.


There is an option which would generate a lot more cash for Millicom and that would be to allow Vodacom to buy the operations in Tanzania and DR Congo. It would be a difficult sell to the governments and probably would cost a lot in consultancy dollars, but it would make the whole of Africa assets palatable for Vodacom. After all a dominant position in an oligopoly of 3 is worth a lot more than a market with 4 operators.

Finally, words of wisdom for Vodafone from the great strategist, Sun Tzu “When some are seen advancing and some retreating, it is a lure”

There is an asset which has been mentioned in dispatches and that is Uganda Telecom which is both fixed and mobile. The Ugandian cellular market consists of three companies: MTN, Celtel and Uganda Telecom. This would make a lot of sense to buy, especially as MTN and Celtel can’t pump the price up.