New Delhi/Mumbai: Bharti Airtel Ltd’s proposal to merge with MTN Group Ltd—not one buying the other—would be placed before the MTN board by the end of this week and likely taken up by the Johannesburg company’s board early next week, say people familiar with the talks between the two telecom companies.
But a few industry analysts also predict MTN, Africa’s largest phone firm, will have to be valued at about $50 billion, or $25 a share (Rs1,060 per share), about 25% more than its current value, for a deal to be consummated.
Mint's National Editor (Corporate) Josey Puliyenthuruthel on the Bharti-MTN deal
This company, backed in part by the balance sheets of all partners, will have easier access to equity markets overseas and will reduce dependence on high-cost debt financing needed to close the deal. A swap ratio, which is likely to favour Bharti shareholders given the company’s superior profitability and future growth potential, as also regulatory formalities are also expected to be easier with this structure.
A Bharti spokesperson declined to comment and calls and messages to Mittal and Akhil Gupta, joint managing director, Bharti Airtel, were not returned.
The deal is likely to prove expensive for Bharti Airtel, if it decides that it wants to partner with MTN amid likely competition from suitors such as Emirates Telecommunications Corp., or Etisalat, and some Gulf-based investors who are both likely to join the race for MTN, analysts said.
“With momentum building up, the MTN shares could be valued at $25 going forward, and Bharti might have to pay around $50 billion to acquire the company,” said a London-based financial analyst who didn’t want to be identified. “I also understand that there are several Middle East based investors who are beginning to look at MTN now.”
Shares of MTN, which were trading at around $20.2 toward close of trading Wednesday on the Johannesburg Stock Exchange, value MTN at $40 billion, with a net debt of around $2.9 billion. Shares of Bharti, which are listed at Bombay Stock Exchange, gained almost 3.3% on Wednesday to close at Rs848.40 a share.
What makes MTN attractive to several potential acquirers is its 68.2 million customers across 21 countries, including South Africa, Nigeria, Iran and Cyprus; annual profits of $1.58 billion and annual revenues of $9.62 billion. Bharti Airtel, in comparison, with some 62 million customers, reported net profit of $1.67 billion on sales of $6.76 billion.
MTN has explored several sell-out options in the past but, this time, the management and shareholders of the company seem serious about concluding a deal, another analyst tracking the African firm said. “Almost two years ago, the MTN management had decided against selling out to Vodafone Group because the senior executives believed they could make more money by staying put—and the time has now come to unlock value,” said a financial analyst with the Johannesburg offices of Nomura Securities, asking not be identified.
Besides the Makati family of Lebanon, other top shareholders of MTN include its senior management and employees, who control some 13% through a trust called Newshelf664 and Public Investment Corp, which has an equal holding.
Interest from West Asia does not augur well for Bharti Airtel in its pursuit of MTN, a third analyst said, given that firms and investors from the region are backed by profits from record-high oil prices. “Etisalat is known to be an aggressive bidder, and with them joining the race to acquire MTN, Bharti might have to offer $23 or even more for each MTN share, up from around $21 it is considering now,” said a Mumbai-based telecom analyst on Tuesday. He didn’t want to to be identified.
The big question that “Bharti will have to answer is how much of equity will they be ready to divest if the deal structure is going to be both cash and equity?” asks Harit Shah, telecom analyst at Angel Broking. “And Bharti will not go alone if the deal is really big.”
The London analyst said he expected deep-pocketed Singtel to play a larger role if a potential deal for MTN is for 100% of the African firm through an outright buyout or merger. Exploring international markets for future growth has been on Bharti’s agenda in recent years. Since December 2006, the company has made unsuccessful bids for a mobile licence in Bhutan and Saudi Arabia, apart from showing interest in a 51% stake in Telkom Kenya Ltd in June last year, which was ultimately won by Vodafone.