New Delhi: Bharti Airtel Ltd and MTN Group Ltd extended for the second time the deadline for completing discussions in the run-up to a possible merger and analysts said the two companies may have given themselves more time to structure the deal which is becoming increasingly complex, and that the chances of the deal going through remained high.
Bharti chairman Sunil Mittal faces the task of winning over MTN’s shareholders who say the Indian company’s offer isn’t enough for them to approve the estimated $23 billion (Rs1.12 trillion) merger.
The second one-month delay pushes back the potential formation of a mobile phone carrier with annual sales of $20 billion and 200 million wireless subscribers from Johannesburg to Mumbai.
“We’d like the talks to conclude as soon as possible,” Theo Maas, who helps manage $3.5 billion in investments including Bharti shareholder Singapore Telecommunications Ltd at Fortis Investment Partners, said over phone from Sydney. “MTN is probably a good merger partner.”
Singapore Telecom, South-East Asia’s largest phone carrier, owns around 30% of Bharti.
“Discussions between the parties regarding the potential transaction continue to progress satisfactorily and the parties have accordingly agreed to extend the exclusivity period until 30 September,” a statement from both companies said. “No decision or agreement to acquire any shares or implement the potential transaction outlined above has yet been made by the boards of either Bharti or MTN and the discussions may or may not lead to any transaction,” it added.
“Probably some more approvals are needed. The integration of MTN’s subsidiary firms and the approvals for them have to also be sorted out. There are chances that the contours of the deal have changed and so they (may) have restarted negotiations based on these contours now,” said Kevin Trindade, senior analyst with Mumbai-based KR Choksey Shares and Securities Pvt. Ltd.
MTN is pushing Bharti to raise its offer for the South African company by at least than $1 billion, The Wall Street Journal reported on 14 August, citing people familiar with the situation.
According to the original structure of the deal, discussions of which were announced on 25 May by both firms, Bharti has offered 86 rand (Rs525) plus one Bharti share for every two MTN shares to acquire approximately 36% of the current issued share capital of MTN from MTN shareholders in the form of global depository receipts (GDRs).
This, along with MTN shares issued as part settlement for the South African company’s acquisition of an effective stake of around 25% in Bharti after the transaction, would have taken Bharti’s stake in MTN to 49%.
The remaining stake in Bharti was to be held by MTN shareholders.
Each GDR, equivalent to one share in Bharti, is to be listed on the Johannesburg Securities Exchange operated by JSE Ltd, South Africa.
The deal needs the approval of shareholders who own at least 75% of MTN stock. Reuters reported on 28 May that some MTN shareholders, including Coronation Asset Managers, which holds about 5%, have rejected the proposal.
At least four of MTN’s top 25 shareholders will reject an offer from Bharti, Reuters reported on 27 May, citing the investors.
Bharti hinted in an early August statement that it could sweeten the deal for MTN.
“They were under tremendous pressure to sweeten the deal for the MTN shareholders,” a Mumbai-based analyst with an international brokerage firm said, speaking on condition of anonymity. “They may have done this, given that funding is not a problem. I understand that a number of banks are lining up to fund the transactions.”
The deal is important to both companies.
“The fact that they are still in discussions shows that they are still serious.” Trindade said. “There are chances that the deal can fall through. I agree that the deal may not happen but there are chances that it will.”
“I would not think that there is any indication that the deal will fall through,” added a senior analyst with a Mumbai-based international brokerage who asked not to be identified as he is not authorized to speak to the media. “They are extremely tight-lipped about the deal. There is no new information coming out and as an investor that is a very frustrating aspect,” he added.
Shares of Bharti Airtel fell 1.3% to close at Rs400 each on the Bombay Stock Exchange (BSE), narrowing the stock’s advance this year to 12%. The shares have underperformed the benchmark index’s 56% increase.
MTN declined 0.6% to 126.50 rand in Johannesburg trading, valuing the company at little over $29 billion.
Bharti and MTN will need to clear regulatory hurdles in India and South Africa.
A deal may face fewer hurdles than Vodafone’s purchase of a controlling stake in Vodacom Group Ltd. The Congress of South African Trade Unions, the country’s largest labour federation that filed a lawsuit against the Vodacom deal, said on 27 May it doesn’t plan to block a MTN-Bharti transaction.
India’s finance minister Pranab Mukherjee on 26 May termed the two carriers’ proposal to combine a welcome move.
Obviously it’s a very complex situation, both with the South African government and Indian government being involved, Maas said.
Reuters and Bloomberg contributed to this story.