Mumbai / New Delhi: Shares of telco Reliance Communications Ltd, or RCom, plunged around 11% in value in trading on Tuesday with analysts expressing concern that the company’s merger talks with MTN Group Ltd, Africa’s biggest phone services business, may be floundering as a deadline for exclusivity in negotiations nears.
The mood in the stock market was decidedly bearish with the Bombay Stock Exchange’s benchmark index shedding 3.49% at close of Tuesday trades, but shares of RCom, India’s second-ranked mobile phone services firm by customers, dropped the most since 21 January and touched a 52-week low of Rs392 each, before recovering marginally to Rs396 at close.
RCom, chaired by billionaire businessman Anil Ambani, and MTN have said they are engaged in exclusive talks for a 45-day period, which ends on 9 July.
“The deadline’s getting closer, and there is no indication of what the outcome is going to be,” said Nishna Biyani, telecom analyst at brokerage Prabhudas Lilladher.
“Still, these are big companies and due diligence can take a while, and I wouldn’t be too perturbed.” Two other analysts concurred with this view.
One person with knowledge of the deal talks said the negotiations were headed towards a stalemate. A potential legal challenge that RCom faces from Reliance Industries Ltd, or RIL, a company controlled by Mukesh Ambani, the estranged brother of Anil Ambani, makes it “hard for any publicly listed foreign company to conclude the deal”, said this person who did not wish to be identified.
RIL has laid stake to first right of refusal on RCom shares citing an early 2006 agreement between the two brothers who split the business their father Dhirubhai Ambani built over three decades.
The person added that the valuations of both RCom and MTN have fallen dramatically since their deal talks began in the last week of May.
RCom shares have lost more than 37% value in the weeks since and MTN nearly 25%. “The valuations have changed dramatically and the swap ratio talked about earlier will have to be relooked completely; it will entirely be a new deal.”
However, a second person close to the deal, who too did not wish to be identified, said the talks are continuing and RCom was positive about the deal.
“The discussions are in advanced stages, final modalities are being worked out. RCom is in the last lap of the race,” this person said. One option before RCom could be to have MTN extend the 9 July deadline if the deal talks don’t end before that date.
An MTN spokesperson said the company had no fresh information on the negotiations.
Meanwhile, Press Trust of India quoting South African daily Business Day said the deal was being fashioned as an RCom takeover of MTN rather than the other way around.
Most telecom stocks fared poorly on Tuesday. Shares of Bharti Airtel Ltd, RCom’sbigger rival and a suitor for MTN until last week of May, closed at Rs706.90, weaker around 2%. The Idea Cellular Ltd scrip was down 6.34% to Rs87.20.
Reuters and Bloomberg contributed to this story.