Singapore: Bharti Airtel Ltd and South Africa’s MTN Group Ltd are close to an agreement, people familiar with the matter say.
However, there is no certainty MTN shareholders will back the deal.
“The concern is that MTN holders may insist on a higher offer by Bharti. If they are convinced by the management, we will have an agreement by mid-September,” said a person familiar with the situation. “It will become more clear in the next few days. The offer may change in the end.”
Shareholders owing a combined 75% in MTN must approve the deal.
The person said Bharti Airtel is considering a small sweetener from its current offer, but there is not much space to manoeuvre as the South African rand has gained against the US dollar since the revival of the talks in May.
Since 15 May, the rand has risen 9.2% against the US dollar, recently trading at 7.86 rand per dollar. The transaction will be done in US dollars.
Bharti Airtel is offering MTN shareholders roughly $13.1 billion (nearly Rs64,200 crore) in cash and shares for a 49% stake. At current prices, Bharti would pay around $7.4 billion in cash. MTN shareholders will also receive Bharti global depositary receipts (GDR)—one GDR per two MTN shares—that are worth about $5.7 billion in total.
Bharti has lined up about $4 billion in loans from eight banks to help finance the deal, said the person.
“Bharti has already increased the cash portion, but MTN holders want around another billion, mostly in cash. That’s the sticking point,” the person said. “But the signals from MTN is that their shareholders will eventually go along with a smaller premium.”
A second person said that MTN must mainly convince Public Investment Corp. Ltd (PIC), a powerful body controlled by the South African government that holds nearly a 20% stake in the company, to accept the deal.
PIC is perceived to act on behalf of the government.
Lebanon’s Mikati family, which owns 10% of MTN, has already said it backs the deal.
The second person said MTN is now offering Bharti Airtel around $10.5 billion for a 36% stake in the Indian operator. The company had said in May that $2.9 billion will be in cash, so the remaining $7.6 billion will be in shares.
The total value of the deal amounts to $23.6 billion, which is close to the $23 billion figure announced by the two companies in May.
The first person said backing by Bharti’s shareholders is not an issue as the founding family holds nearly 45% and Singapore Telecommunications Ltd (SingTel) holds another 30%. The Indian company also needs approval by 75% of its investors, and SingTel supports Bharti in the transaction.
A third person told Dow Jones Newswires that SingTel is considering buying Bharti GDRs from MTN shareholders in order to keep its position in the Indian company close to its current level of 30%. Analysts have estimated that SingTel’s stake will be reduced to about 19.4% based on the terms disclosed so far.
Citigroup said in a report that the GDRs will represent about 11% of Bharti’s outstanding shares. While SingTel would be able to preserve its stake at current levels by buying all of them, the report said SingTel may need to raise equity to pay for all the GDRs.
If the marriage works out, it will create the world’s third largest mobile phone operator by subscribers, with over 200 million users.
The two companies extended earlier this month their exclusive talks to 30 September.
Separately, MTN on Thursday posted a 22% rise in first-half net profit after continuing to add subscribers.
Net profit rose to 7.63 billion rand (Rs4,807 crore) for the six months ended 30 June from 6.24 billion rand, or 326.60 cents per share, a year earlier. The figure was in line with a 20-25% increase in earnings per share forecast by the company on Tuesday.
Johannesburg-based MTN said its customer base rose 14% from the start of the year to 103.2 million at the end of June. However, the company said many of its markets remain “relatively vulnerable” despite indications global economic conditions may be beginning a slow recovery. Competition is expected to continue intensifying, it added.
Revenue for the period increased 24% to 57.27 billion rand, from 46.13 billion rand previously.