Deciphering the revised Bharti-MTN deal

Deciphering the revised Bharti-MTN deal
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First Published: Thu, Sep 10 2009. 09 58 PM IST

Updated: Thu, Sep 10 2009. 09 58 PM IST
Shares of Bharti Airtel Ltd rose by 1.75% on Thursday after a Bloomberg report that the company had sweetened its bid for South Africa’s MTN Group Ltd.
While Bharti has denied the report, most analysts feel that the report may be right at least on two counts—first, that the deal will be sweetened and second, that Singapore Telecommunications Ltd (Singtel) will get involved.
The big questions of course are to what extent the deal may be sweetened and to what degree Singtel would get involved. According to the report, the company has boosted the cash portion of its bid. Based on the announcement made by the company in May this year, it would pay MTN shareholders 86 rand (Rs557.28) in cash and one newly issued Bharti share (in the form of a global depository receipt, or GDR). Based on current share prices and current exchange rates, that translates into a acquisition cost of $13.19 billion (Rs63,840), with $7.54 billion being paid as cash and rest as Bharti stock. From an MTN shareholders’ perspective, this represents an 18% premium to the current share price and a 36% premium to the share price in May, when the first announcement regarding the deal was made.
Graphics: Sandeep Bhatnagar / Mint
While this is a good deal for them, many shareholders have been pressing for a higher component of cash and have looked down on the option of holding Bharti Airtel’s GDRs, which could be an illiquid investment.
The Bloomberg report suggests that new deal involves a payment of $10 billion in cash and $4 billion as stock, and that too that only two major MTN shareholders will be issued stock and that the rest of the shareholders will be paid fully in cash. While there’s little doubt that MTN shareholders would jump at such an option, the pertinent question is where Bharti would raise all this cash from, considering that it would need a high amount of cash to bid for a third-generation licence.
That’s where Singtel steps in. The report states that the Singapore-based company will buy Bharti shares worth as much as $3 billion. This cash would be used increase the cash payout to MTN shareholders. Some analysts say that another option is for Singtel to step in and offer to buy Bharti GDRs from MTN shareholders who are uncomfortable holding the illiquid instrument.
Either way, almost everyone involved in the deal seems to be uncomfortable holding GDRs, and the final deal outcome would depend on how Bharti is able to overcome this hurdle. While doing this, it also has to ensure that open offer limits are not triggered—GDRs aren’t considered while ascertaining takeover code limits.
Meanwhile, it’s heartening from a Bharti shareholder’s perspective that there are no signs of the deal value being raised significantly, since that would have resulted in earnings dilution.
Write to us at marktomarket@livemint.com
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First Published: Thu, Sep 10 2009. 09 58 PM IST