Mumbai / New Delhi: India’s Bharti Airtel may structure a stake sale to South Africa’s MTN Group, part of a larger merger plan, through its holding company and parent firm so there is no need for an open offer, two bankers and a legal source said.
Bharti and MTN are working on a deal worth $23 billion in cash and stock, under which the Indian firm would get 49% of MTN, after MTN and its shareholders get a 36% stake in Bharti, with a full merger the long-term goal.
MTN would get a 25% stake in Bharti, and its shareholders would get 11% under the deal.
Under Indian regulations, the purchase of 15% in a listed company triggers a automatic open offer to buy a further 20% from the open market.
“We believe that the proposed transaction structure would not trigger a mandatory tender offer in India,” Bharti Airtel said on Wednesday in an emailed response to questions sent by Reuters.
The sources said the deal was likely to be structured in such a way that MTN got shares in either Bharti Telecom, the holding company of Bharti Airtel, or its parent Bharti Enterprises or in both.
Under this route, Bharti Airtel would file the deal as a ‘scheme of arrangement´ under the Indian Companies Act that would exempt MTN from an open offer.
“At this juncture, regulatory hurdles are the steepest. Bharti and MTN seem to have thought of it quite carefully,” said one banker, who had knowledge of the deal, but declined to be named as he was not authorised to speak to the media.
Bharti and MTN’s previous merger talks collapsed a year ago over who would control the combined entity.
Bharti also said on Wednesday the deal would meet laws limiting foreign investment in Indian telecom at 74%.
“Bharti Airtel’s current FDI level is in the low-40%... Bharti Telecom will continue to be the largest shareholder in Bharti Airtel and together with MTN and SingTel shall have a majority economic interest in Bharti,” the company said.
Even if a scheme of arrangement leads to changes in the management control, board reconstitution and economic interest in the firm, an open offer is still exempted under the takeover code. The process needs to be approved by a court.
Bharti Telecom is the largest shareholder in Bharti Airtel with a 45.3% stake, according to estimates by CLSA released in February. Bharti Telecom is 67% owned by Bharti Enterprises and 33% owned by Singapore Telecommunications.
SingTel also has a direct 15% stake in Bharti Airtel, giving it a total holding of 30.4%, according to CLSA. If MTN were to get its stake through the holding firm or parent, they would not necessarily have board representation or voting rights equal to their holding, the sources said.
When announcing the deal on Monday, the firms said MTN “would have appropriate representation on the Bharti board.”
Further, MTN shareholders may get a stake in Bharti Airtel through global depositary receipts that do not carry voting rights unless converted into equity shares, the bankers said.