The Commission has approved without conditions the intermediate merger whereby Newshelf 1363 (Pty) Ltd (Newshelf) intends to acquire Afrihost.
Newshelf is a newly incorporated firm that does not conduct any activities. Afrihost is an internet service provider whose activities include data hosting services and ancillary services, retail asymmetrical digital subscriber line internet access services and mobile internet access services.
The shareholders of Newshelf are largely the existing management of Afrihost. The proposed transaction is therefore a management buyout (MBO) which re-establishes the status quo of Afrihost’s ownership before MTN acquired control in 2014. As a MBO, the merger does not change the structure of any markets and as such the Commission stated that it is of the view that the proposed transaction is unlikely to substantially prevent or lessen competition in any market.
Unpacking the Afrihost Sale
MTN Group reported in its 2016 Interim Results (6 August 2016), that it sold its 50.02% investment for R320 million. In doing so, it recorded a goodwill impairment loss of R202 million at 30 June 2016 based on the remeasurement of the assets to fair value less cost to sell. It is interesting to note that MTN purchased its shareholding in June 2014 for R403 million, thus valuing Afrihost at around R816 million in June 2014.
Analysis of the MTN Group interim results, shows that Afrihost earned R679 million over the 12 months from July 2015 to June 2016. Furthermore, Afrihost showed very low growth over the six-month period from December 2015 to June 2016 of only 1.3%.
Outlook for the market
- Consumers: we expect that Afrihost will be free to return to its pre-MTN ownership status of being an aggressive market player in the internet service provider market.
- Wholesale Operators: we expect that Afrihost will be able to buy a wider range of wholesale services from other wholesale providers (other than from MTN).