Bharti-MTN deal hinges on SA stance

Bharti-MTN deal hinges on SA stance

New Delhi: The proposed merger between Bharti Airtel Ltd and MTN Group will go down to the wire as it now depends on approvals from the South African government, said an official of the Indian company before a Wednesday deadline set by the two for the deal to be clinched.

Also Read Bharti says no statement on MTN talks on Tuesday

India’s largest telecom operator by revenue and subscribers announced about five months ago that it had restarted negotiations with one of the largest telecom service providers in Africa and West Asia in what, if it takes place, will be the world’s largest cross-border deal this year, valued at $24 billion (Rs1.15 trillion).

South Africa “had asked for a dual listing which is not possible" as Indian rules don’t allow it, said another company official, who didn’t want to be named.

Finance minister Pranab Mukherjee has said there were legal issues to be sorted out and the rupee needed to be made fully convertible before dual listing could be allowed. He reiterated the government’s backing for the deal on Tuesday.

“We are working on it. Both the Prime Minister and myself have said that we are taking a positive approach and outlook to it," Mukherjee told reporters in New Delhi.

The finance minister had said in an interview on Monday that neither of the firms was looking at an immediate dual listing.

On 25 May, Bharti announced the broad contours of the deal that would make the combined entity the third largest wireless phone firm in the world with at least 200 million subscribers and annual revenue of around $20 billion. It would only be behind China Mobile Ltd and Vodafone Group Plc.

As per the original deal structure that is still under discussion, Bharti said it had offered 86 rand (Rs562) in cash plus half a Bharti stock for each MTN share for a 49% stake in MTN.

MTN, along with its shareholders, would acquire 36% of the New Delhi-based operator. At the time, the value of the deal was pegged at $23 billion.

The deal structure is understood to have changed now with Bharti sweetening the transaction for the MTN shareholders by around 10% after it became clear that many of the minority shareholders were against the plan.

Sorting issues: Finance minister Pranab Mukherjee had said that neither of the companies was looking at an immediate dual listing. Ramesh Pathania / Mint

Bharti had agreed to give $4 billion in stock to two of MTN’s biggest shareholders, the Mikati family promoted M1 Group and South Africa’s Public Investment Corp., while offering remaining shareholders $10 billion in cash.

The deadline for exclusive talks between the two firms has been extended twice from 31 July to Wednesday.

On Tuesday, Ashok Chawla, secretary in the finance ministry, said the Indian government had not been formally approached about a dual listing. “We will have to see what the South African side or the Indian company comes up with, and when that happens is difficult to say," he told reporters.

Last week, the Securities and Exchange Board of India (Sebi), India’s market regulator, altered takeover rules, which could mean that MTN may be required to make an offer for an additional 20% stake in Bharti if the merger goes ahead.

“We have no idea what exactly is expected to come out at this point but this deal is a definite positive for both Bharti and MTN and we hope it does go through," a Mumbai-based analyst with an international brokerage company said on condition of anonymity. “At this point, I see it going in any direction," he added.

Earlier on Tuesday, Bharti officials had said that there would a statement updating developments on the deal. Based on this, analysts predicted that the deadline would be extended until the South African authorities approve it or the deal would be called off. Bharti later announced it wouldn’t be making any statement.

The merger proposal is now believed to be in the hands of politicians who are broadly supportive of the proposal, as it is in line with a trilateral economic development initiative involving South Africa, India and Brazil, Reuters reported.

MTN’s chief executive Phuthuma Nhleko said last month at the time of announcing his firm’s interim earnings results that hypothetically his company could buy all or part of Kuwaiti firm Zain’s African operations, which are understood to be on sale, if the deal with Bharti fell through.

Zain’s African operations are estimated to be worth about $10 billion. MTN and Zain have five markets in common, including Nigeria, which is considered the largest market outside their home bases.

Analysts say a merger between Bharti and Zain is also possible. The Indian company is aggressively looking at international expansion and has also placed a bid for Luxembourg Millicom International’s assets in Sri Lanka despite being in talks with MTN.

Bharti already has significant operations in Sri Lanka under the name Airtel Lanka.

The fast-growing Zain operates in 24 countries and its so-called one-network strategy, where it has abolished roaming charges across 12 African countries, could make it a good fit for Bharti, which has adopted a so-called minutes factory process in which the main characteristic is the “mobile lite" approach in which it outsources many central functions.