IHS vs Shareholders: What a hostile takeover means

IHS Holdings, the Nigerian-based telecommunication infrastructure provider that is listed on the New York Stock Exchange (NYSE) is in an intense power tussle with two of its majority shareholders, MTN Group and Wendel SE.

MTN Group, Africa’s largest telecom operator, and Wendel, a French investment company, which together own about 45 percent of IHS, are demanding a change in the corporate governance of the telecom infrastructure provider.

On Friday 23 June 2023, IHS engaged JP Morgan Chase for advice because it was concerned that the pressure from the shareholders would eventually lead to a hostile takeover from the investors. It is coming barely hours after MTN demanded an extraordinary meeting of board members to address issues around its capped votes.

In 2022, the tower company acquired 5,701 towers from MTN. However, MTN owns 26 percent of IHS Towers through its subsidiary Mobile Telephone Networks (Netherlands) B.V. The largest telecom operator in Africa said the acquisition was before IHS became a publicly listed company on the New York Stock Exchange in 2021. At the heart of the problem is IHS Towers’ decision to cap MTN’s voting rights at 20 percent, below the ownership value.

Read also: MTN demands board meeting over rift with IHS

Earlier in June, Ralph Mupita MTN Group CEO informed investors that it plans to keep its investment in IHS for another three to five years despite the telco’s decision to reduce its debt and streamline its business. IHS has not also been performing well on the stock exchange. The company has lost half of its value since listing on the NYSE. It debuted at $1.9 a share, but it is now trading at $8.51. MTN’s share of 2 percent is currently valued at about $747.17 million. However, the telco’s plan not to offload the IHS may indicate it has some designs towards the tower company which has informed the hard stance on corporate governance. IHS’s fears of a hostile takeover may also be valid from a statement issued by MTN on Wednesday.

“MTN has requested the IHS board to call an extraordinary general meeting of the IHS shareholders to consider the above-mentioned proposal, and any other shareholder proposals relating to governance, to which the group awaits a response. Beyond this, MTN is currently evaluating all its options to fully enforce the Shareholders’ Agreement and Articles,” MTN said in a statement.

What is a Hostile Takeover?

A hostile takeover happens when a company – or a person – attempts to take over another company against the wishes of the target company’s management. Another way to look at it is a type of acquisition where a company (the acquirer) takes control of another company (the target company) without the approval or consent of the target company’s board of directors. In other words, the target company’s management is not in favour of the takeover, hence the term “hostile”.

Although IHS declined to comment on the demand for an extraordinary meeting called by MTN, in particular, it is not favourably disposed to it as shown by a quote in a Bloomberg report.

The extraordinary general meeting MTN is demanding refers to any shareholders meeting called by a company other than its scheduled annual meeting. The objective is usually to deal with urgent matters at annual shareholders’ meetings.

While the meeting is likely to give MTN direct access to the shareholders, which is a position where hostile takeovers usually take place, it is not so simple.

According to Bankrate, hostile takeovers often begin with the acquiring company making an offer to the target company while working with its board members and management to convince them of a deal’s merits. The deal turns hostile once the target company’s board members refuse, and the acquirer goes directly to the shareholders.

To achieve a hostile takeover, MTN would need to submit a bid offer to purchase IHS for a reasonable rate. Usually, the board is expected to consider this offer and in many cases reject the initial offer. This will then lead MTN to the options of a proxy vote, a tender offer, or a large stock purchase.

Proxy votes are often long-drawn as it requires MTN to persuade the shareholders of IHS to vote out the management. Rallying shareholder’s support is an uphill task and there is also the risk that the specialist firms hired to rally the votes, might oppose or challenge the proxy. In the end, should it go its way, MTN would need to install new directors and management.

This is why most hostile takeovers, take the option of presenting an offer Here the acquirer submits a bid offer to purchase the target company for a reasonable rate, for example, Elon Musk offering to purchase Twitter at $44 billion. Since this price is usually higher than the market rate, it is highly likely to force the hands of the board or the shareholders.

Does MTN need IHS?

MTN has recently launched its 5G network in Nigeria, the biggest market in terms of the number of subscribers, and is rapidly scaling its telecommunication infrastructure for the technology. It has so far deployed about 700 cell sites across 13 states and plans to increase this number in the coming days.

IHS manages the majority of the infrastructure for the company, hence, the intensity with which it is pursuing the reorganisation. But the telco has yet to say whether it wants to control the tower company as a subsidiary or have more say about how things are run in the company.