IHS’s public fight with shareholders including MTN, is a rare look at the boardroom dramas that usually do not make it into the public discourse.
The questions are: what’s at stake here? Why does MTN care so much about this matter to have such a public dogfight about it? And why is IHS seemingly willing to burn bridges with its largest investors?
This week, investment firm Blackwells Capital joined MTN and Wendel — IHS’s second largest shareholder — in voicing concern about alleged governance issues at Africa’s largest cellphone tower business.
This followed MTN’s strongly worded statement calling out “governance concerns at IHS”. The mobile operator wants to have a greater say in IHS’s activities. It drafted a proposal to align its 26% equity stake and voting rights — capped at 20% — that failed to be put to a vote at IHS’s AGM.
These are just two in a series of events that sees IHS, which was cofounded in 2001 by current CEO Sam Darwish, at odds with its investors over governance issues.
Value destruction
The first and most obvious reason for investor displeasure is a drop in IHS’s value over the last two years.
In October 2021, IHS Towers made its US stock market debut, listing on the New York Stock Exchange. At the time, MTN owned about a third of the company and was thought to be on a path to a bumper payday, when it would eventually sell down the investment.
By June 2021, the group estimated the value of that 29% equity at R30.5bn. Selling down this stake, plus other moves such as repatriation of funds from Nigeria, were billed as ways to wipe out the group’s debt.
Unfortunately, market conditions have seen IHS lose half its value since listing. Having debuted at $16.69 a share, it now trades at $9.78. And even with a weaker rand, MTN’s piece of IHS, now 26%, is worth about R16bn.
According to Jason Aintabi, chief investment officer at Blackwells, IHS shares have fallen 60% since the company’s IPO in large part due to the tower company’s refusal to embrace transparency with investors and governance standards.
Blackwells believes IHS should “stop hiding behind Cayman law” and reincorporate in more shareholder-friendly jurisdictions of Delaware or Maryland in the US, calling on IHS to address its concerns via a special meeting.
The firm also wants proposals by MTN and Wendel — which own about 45% of IHS combined — to be heard and voted on by shareholders.
In response, IHS Towers hit back saying a proposal drawn up by the mobile operator to have a greater say in how the tower business is run isn’t in its best interests. It has also rejected a call by MTN to convene an emergency meeting of shareholders, saying the company doesn’t have the authority to do so.
MTN’s voting rights have been capped at 20% since 2014 as per an agreement with the mobile operator “to preserve IHS Towers’ independence and account for the fact that MTN is IHS Towers’ largest customer”.
Peter Takaendesa, head of equities at Mergence Investment Managers, says: “IHS wants to be seen as independent as much as possible while MTN wants to make sure that its value unlock process on the IHS stake is successful in a reasonable time frame.”
“The fact that their [MTN] 26% shareholding can only vote 20% means they don’t have a blocking stake on their own. This is clearly not an ideal situation for MTN and other shareholders that are strategically aligned with MTN.”
Hostile Takeover
In June, Business Day reported that Darwish is afraid that MTN could team up with another investor or parties to launch a hostile takeover of the Nigerian tower business.
Behind the scenes, he believes that if the MTN and Wendel resolutions are passed by shareholders, MTN could be well placed to take over control of the company. This is according to people familiar with the matter.
A hostile takeover is a corporate acquisition that is not supported by the target company’s management. The acquiring company makes an offer to purchase the target company’s shares directly from the shareholders, bypassing the target company’s board of directors.
Valuable telecoms infrastructure
MTN could be setting itself up for a situation where instead of selling the IHS stake, the group helps to grow the company since there’s a lot of interest in telecoms infrastructure assets. Such assets are seen as strategic to have.
In early June, MTN group CEO Ralph Mupita told investors that the mobile operator is unlikely to sell its stake in IHS for the next three to five years.
However, MTN still has the IHS stake listed as part of its asset realisation programme to exit noncore assets, which means the mobile operator is keen to exit at the right valuation level.
Remedies
Shareholders are calling for changes at IHS, barring which they appear prepared to take drastic action.
Blackwells, which voiced similar concerns last year in a letter, says it is ready to assist IHS despite the letter being met with inaction in the first instance. “Should the board follow tradition, Blackwells is prepared to take whatever actions necessary to reconstitute the board to ensure that its demands are promptly met.”
MTN says it “is currently evaluating all its options with the intention of fully enforcing the shareholders’ agreement and articles.”
In a vague statement this week, the tower operator said: “The IHS Towers management team and board of directors have a continued track record of engaging with shareholders, listening carefully to their views and are focused on acting in the best interests of all shareholders.”
“We note the recent comments made by certain of our shareholders and we continue engaging in shareholder dialogue.”
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