Behind MTN’s R33bn towers U-turn

Cellular services giant MTN’s strategy documents are clear on one thing: flexibility has to be a source of value, not an afterthought.

Under “Ambition 2025”, MTN consistently says it wants to build businesses that can be separated, scaled, partnered or monetised depending on the circumstances. It’s a deliberate message: in volatile emerging markets, success depends less on owning more infrastructure and more on how quickly you can change course when regulation changes, currencies move or technology evolves. 

In theory, this flexibility should allow MTN to reallocate capital to its highest-return opportunities. Conversely, deals that narrow its choices, harden its costs or make assets harder to sell should be avoided.

Which is why MTN’s proposed R33bn acquisition of IHS, the US-listed tower infrastructure group, doesn’t look particularly compelling.

MTN already owns the other 25%, so in a sense, this deal wasn’t unexpected. And, on the plus side, IHS is the largest cellphone-tower operator in Africa. It trades at low multiples – about six times enterprise value (EV) to earnings before interest, tax, depreciation and amortisation (ebitda) and mid-single-digit earnings. 

But those multiples are higher than MTN’s own EV-to-ebitda ratio of less than five. And any purchase of IHS would see MTN consolidate IHS’s R54bn of debt, likely worsening its own debt metrics.

Disappointing?

Analysts believe this deal will disappoint investors.

“A transaction of this scale would limit MTN’s propensity to return more capital to investors in the forms of dividends or buybacks over the short term,” said SBG Securities in a new research report this week.

“Management will need to show that synergies and margin improvement from such a transaction are a good use of capital: we think investors were keen on MTN returning more capital to investors on a likely strong performance [this year].”

Over the past year, MTN’s share price has risen 66%, and a majority of the six analysts who cover it still rate it a “buy”. On average, they expect its share price to rise another 11% from here.

But the IHS deal, if it happens, will change all the assumptions.

As it is, IHS’s value obscures the economic reality beneath it: nearly half its value is owned by debt holders, not equity investors. In other words, a major portion of its value accrues to creditors before shareholders – like MTN – ever see a return. 

This structure amplifies IHS’s exposure to currency movements, which have repeatedly overwhelmed operating performance. Over the past several years, foreign exchange losses have erased billions of dollars of equity value, resulting in deeply negative earnings. 

IHS’s income statement makes this imbalance clear: interest costs alone absorb roughly 70% of operating income, leaving little margin for error when currencies move or refinancing conditions tighten.

In this context, low multiples are not a signal of hidden value but a reflection of risk – specifically, a capital structure and currency mismatch that may cause equity holders to act as shock absorbers. 

A strategic inversion

So what does all of this reveal about MTN’s “Ambition 2025” then?

It’s a good question, because full ownership of IHS would fundamentally change how MTN is able to respond to future uncertainty. What is currently a commercial arrangement – where tower capacity can be expanded, renegotiated or shifted over time – would become a fixed infrastructure model that must be supported regardless of market conditions. 

Once the towers sit on MTN’s balance sheet, they are no longer choices; they are obligations. Capital must be allocated to maintain them, debt must be serviced through cycles, and strategic exits become slow, complex and value destructive rather than timely and opportunistic. This raises the cost of changing course as uncertainty increases. 

Future options – such as partnering with alternative infrastructure providers, spinning off assets, or reshaping the network footprint – become harder to execute once ownership replaces contracting. This narrows its strategic paths: fewer ways to adapt, and fewer levers to pull.

In other words, a full acquisition of IHS moves MTN exactly in the opposite direction of its stated aims; it’s not simply a question of financial risk but a reversal of MTN’s own playbook. 

A loss of future flexibility

Of course, the deal isn’t entirely without advantages. MTN will reduce its exposure to rising tower costs, for one thing. “Regular escalations in lease costs compound over time and represent a key risk to MTN’s cost structure,” SBG Securities said.

IHS’s margins for its South African towers sit at 59%, the analyst said, which means a deal would “positively enhance MTN’s profit margins”.

But does any economic advantage compensate for the loss of future flexibility?

Any improvement in profitability should hold through the cycle – in other words, not just in favourable market conditions – and it must come without diverting capital from higher-return opportunities elsewhere.

But if ownership merely reshapes cash flows, increases capital intensity or shifts risk without raising returns, then the trade-off won’t work. Either owning IHS produces sustainably higher returns than MTN’s next-best investments, or it does not. If it does not, the strategic case collapses.

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_{Top image: Pexels Abu Bakar Siddique/Unsplash David Millenov/Currency collage.}