South Africa's MTN Group ended talks with Egypt's Orascom Telecom about a potential acquisition, sinking a deal that could have created the world's third-largest mobile operator.

Africa's top mobile phone operator began talks in late April about acquiring Orascom or some of its assets. The deal was complicated by Algeria's government, which wants to buy Orascom's unit in that country.

Analysts have said that without the money-spinning Algerian unit, Djezzy, the deal would have little meaning for MTN, which is desperate to expand and needs a foothold in North Africa.

The failure highlights the political and regulatory risks facing potential deals in emerging markets where mergers and acquisitions of telecoms are at an all-time high.

MTN which needs to push beyond its key markets of South Africa, Nigeria and Iran, has failed to do a deal four times in the last three years.

Takeovers of emerging market telecom companies have soared with deals valued at $64.6 billion dollars so far this year, according to Thomson Reuters data, more than a third higher than the previous record of $39.4 billion dollars in the first six months of 2006.

Both MTN and Orascom said in separate statements on Wednesday that talks had been terminated. No one was immediately available for comment at either company.

Shares of MTN could benefit from the news, said David Lerche, a telecoms analyst at Johannesburg-based Avior Research.

'I do think the news is good because it removes uncertainty around acquisitions regarding the shares,' he said.

'Part of the reason the share has performed badly recently is that people have been a bit concerned about what sort of multiples they will be paying for an acquisition.'     The deal could have created the world's third-largest mobile-phone firm if all of Orascom's assets were included.

Bad for Orascom

The news would likely be seen as a negative for debt-laden Orascom, said Amr Elalfy, an analyst at Cairo-based investment bank CI Capital.

'Investors were expecting some kind of deal to come out,' he said.

'I'm still of the opinion that Orascom Telecom is worth more in piecemeal than as a company right now, so I would not be surprised if (it) comes up with another deal that unlocks hidden value,' he said.

MTN offered to pay $7.8 billion for the Algerian unit, Orascom's chairman told Reuters last week.

Orascom said late last month it would begin talks to sell the unit to the Algerian government, bowing to weeks of pressure from Algerian officials, who have said the state had the right to bid on the unit before a foreign buyer.

The Algerian unit has been Orascom's top earner, bringing in revenue of $412.5 million, or one-third of Orascom's total, in the first quarter of 2010.

But it has also brought plenty of trouble to the Egyptian company, due to Algeria's growing economic nationalism.

The Algerian government has slapped Djezzy with back taxes and penalties, and in November Algerian football supporters attacked Djezzy's headquarters following a football match with Egypt.

'For Orascom it simply means that it is business as usual, with the negotiations with the Algerian government the critical issue,' Nomura analyst Martin Mabbutt said in an e-mailed statement.

Abu Dhabi's Etisalat, which had expressed interest in Djezzy, could be interested in buying the unit once Orascom resolves its issues with the Algerian government, said CI Capital's Elalfy. – Reuters