Mumbai / New Delhi: Representatives of MTN Group Ltd, an African phone firm that is in merger talks with Reliance Communications Ltd, or RCom, India’s second largest mobile phone services company, have begun studying the accounts and operations of the Mumbai-based telco as part of what in financial circles is called due diligence, according to people close to the discussions.
The move signals speedy progress in the deal talks, which, if successful, could result in a swap of shares by the two companies potentially leading to RCom chairman Anil Ambani becoming the single largest shareholder in the combined entity.
The composition of the MTN team was not immediately clear. Deutsche Bank AG and Merrill Lynch South Africa (Pty) Ltd are the financial advisers to MTN in the transaction. RCom has not engaged a financial counsel in the deal talks yet but has hired Indian legal firm Amarchand and Mangaldas and Suresh A. Shroff and Co., said one person, declining to be named given the talks were still on.
An RCom spokesman declined comment and calls to a spokeswoman of MTN were not returned.
RCom, valued at around $28 billion (Rs1.2 trillion) on the stock market, has at least 45 million customers in India on its predominantly CDMA (or, code division multiple access) networks. It is readying a multi-billion dollar equipment purchase contract to enter the widely popular market for GSM-based mobile phone services. GSM is a rival technology platform to CDMA and is the dominant one in India.
MTN has more than 68 million customers.
Meanwhile, MTN will likely be the acquirer in the transaction rather than be acquired, an analyst firm predicted. “We think that if MTN was really up for sale, India would not be the most lucrative region to pursue a disposal. We’d try Saudi Arabia, Gulf Cooperation Council, Russia or Europe. Secondly, management comments over the past 12 months have been about acquisitions, rather than disposals,” wrote Rhys D. Summerton and co-analysts at Citi Investment Research, a division of Citigroup Global Markets Inc. in a report on Tuesday.
Shares of RCom shed 0.03% to close at Rs551.60 each on Wednesday, while MTN shares declined for the third day running by as much as 2.1% to 141.80 Rand—a 9.7% drop from Monday after its talks with earlier suitor Bharti Airtel Ltd failed on the weekend.