Mumbai / Johannesburg: India’s largest private telecom company Bharti Airtel Ltd. said on Saturday it had ended takeover talks with South Africa’s MTN Group after failing to agree on which company will control a combined entity.
The groups had hoped to create the world’s sixth-largest mobile operator with over 130 million subscribers in 24 countries after first announcing they were in talks on 5 May.
But Bharti said on Saturday it had called off the talks after MTN proposed a new structure which would have seen the Indian group becoming a unit of the South African-based mobile phone operator.
Despite talks which dragged on late into Friday night, an agreement could not be reached.
“Further and more importantly, Bharti’s vision of transforming itself from a home-grown Indian company to a true Indian multinational telecom giant, symbolising the pride of India, would have been severely compromised this was completely unacceptable to Bharti,” the Indian company said in a statement.
The media and analysts had speculated that Bharti, 30.5% owned by Singapore Telecommunications, was eyeing a 51% stake in MTN or would engineer their merger in a deal that would value MTN at up to $50 billion.
One Johannesburg-based analyst said any merger would have been difficult as MTN was clearly the biggest group and it would have been a case of “David taking on Goliath.”
“It does not come as a surprise because it’s David taking on Goliath. Quite clearly MTN is the larger of the two, so it would have been a merger of unequals,” said the analyst, who declined to be named for compliance reasons.
MTN had 68.2 million subscribers as of March, compared with Bharti’s 62 million. The South African firm’s annual revenue is $9.6 billion, against Bharti’s $6.7 billion, according to Citigroup.
The analyst said the failure of the talks opened the door for other mobile operators to open talks with MTN.
“Maybe other mobile operators would be more inclined to go into a merger and to allow MTN still to control its own destiny.”
Bharti said a price for MTN shares had been agreed and it had secured funding to the tune of $60 billion from over a dozen international bankers from the US and Europe.
“Discussions were on till late last night without a breakthrough. Accordingly, Bharti has decided to disengage from the ongoing talks and has conveyed the same to MTN,” it said.
“We will update our shareholders as the market opens on Monday morning,” MTN spokeswoman Nozipho January-Bardill said.
MTN is sub-Saharan Africa’s biggest mobile operator, and is present in some of the world’s most lucrative markets, such as Nigeria, Cameroon, Ghana, Zambia and Uganda.
“MTN’s thinking about acquiring Bharti is obviously unacceptable,” said Gajendra Nagpal, chief executive at Unicon Financial, a New Delhi-based investment advisory firm.
He said Bharti shares will likely rebound after the merger talks failed. Bharti shares rose 2.4% to Rs836.80 on Friday in a Mumbai market that fell 1.5%, although the firm’s stock remain 6.4% down since the talks were announced.
Shares in MTN ended at 155.65 rand on Friday, valuing it at around $38.5 billion.
In South Africa’s fiercely competitive market, MTN lags Vodacom, jointly-owned by Telkom and Vodafone Plc, but it is seeing strong growth in Iran, for example, where oil money is spurring market growth and MTN has only one serious rival mobile operator.
Bharti said the MTN board had invited it to exploratory talks about combining the two firms, and a number of structures were discussed and evaluated between the lead bankers on both sides.
“MTN has now presented a completely different structure, from what was agreed,” it said, adding the new structure envisaged Bharti Airtel becoming a subsidiary of MTN and exchange of majority shares of Bharti Airtel held by the Bharti family and Singtel, in exchange for a controlling stake in MTN.
“Bharti believes that this convoluted way of getting an indirect control of the combined entity would have compromised the minority shareholders of Bharti Airtel and also would not capture the synergies of a combined entity,” it said.
“This is a right move by Bharti. It just does not make sense giving control away,” said an analyst with a Mumbai brokerage who asked not to be named.
Emirates Telecommunications (Etisalat) has previously said it was evaluating a possible bid for MTN, and China Mobile, the world’s biggest mobile carrier, had said it was interested in the South Africa market.