Johannesburg - Cellular operator MTN has widened its footprint in the rest of Africa and the Middle East by buying Dubai-based Investcom for $5.5 billion (R33 billion).
The deal will boost MTN's total subscribers to 28 million and help it cut debt.
But the market almost punished the group when the share price dropped to R57.58 from its opening price of R60 after the group announced the deal. The share price later recovered and gained 0.42 percent on the day to close at R60.25. The Top40 index rose 1.38 percent.
Last year MTN declared its firm intentions to expand to the Middle East and made a step in the right direction when it won a 49 percent stake in the Irancell consortium to run Iran's second cellular network.
Investcom, which has listings in Dubai and London, has 4.9 million subscribers in Benin, Cyprus, Ghana, Guinea Bissau, Liberia, Sudan, Syria and Yemen.
Investcom's controlling shareholder, the Mikati family, which owns about 70.6 percent via a company called M1, has accepted the cash-and-share alternative.
MTN offered $3.83 a share to Investcom shareholders, 27 percent more than Friday's closing price.
"It's an exciting deal that will give MTN footprint into other markets but the price is expensive," said Max Koep, an analyst at Deutsche Securities.
The two operators together would have operations in 21 countries with about 28 million subscribers, spanning Africa, the Middle East and Europe.
For the year to December, Investcom had revenue of $903 million and net income of $196 million.
Investcom has recently been awarded GSM licences to build and operate networks in Afghanistan and Guinea Republic, expanding its operations to 10 countries. The expansion will increase the number of people in territories covered by Investcom networks to 147 million.
To fund the deal, MTN will issue about 204 million new shares. It has also secured $3.85 billion from Deutsche Bank.
The transaction was expected to be finalised by August, according to MTN's chief executive, Phuthuma Nhleko.
The issuing of new shares will dilute MTN's existing shareholders to about 90 percent. M1 will own about 9 percent, while the other Investcom minority shareholders will have less than 2 percent.
Nhleko said the deal delivered the next stage in MTN's group's emerging markets growth strategy of expanding to markets that had high growth potential. "It substantially enhances MTN's growth prospects, securing a number of important new markets."
Some of the markets, including Ghana, were still relatively small and had high growth potential, with an average penetration rate of 9 percent.
"Sudan and Afghanistan are greenfield areas that need to be developed," Nhleko said, but would not say how much the companies would invest in those markets.
He expects the deal to help reduce the dependence of the company on Nigerian and South African operations, which have been the major contributors to earnings.
The enlarged company could bid for new licence opportunities. The deal is subject to regulatory approval.