Update on Bharti-MTN deal

Update on Bharti-MTN deal

Bharti Airtel, India’s largest integrated telecom solutions provider, has categorically denied reaching a preliminary agreement with South Africa’s MTN Group, on their planned strategic alliance, saying that the mobile phone firms are still in discussions, ahead of the 30 September deadline for exclusive talks.

It was reported late on Wednesday that the two firms had concluded a preliminary pact to buy shares in each other. Senior company executives have said that an announcement is only likely toward the end of the month, before the expiry of the talks-deadline.

Bloomberg reported that Bharti had sweetened its bid to buy 49% of MTN, by increasing the cash portion of its offer. The proposed $23billion deal’s contours, unveiled in May, involve MTN taking a 25% economic interest in Bharti Airtel for $2.9billion, plus new shares in the South African telco, which is equivalent to 25% of MTN’s existing shares. Besides,

MTN shareholders will also get an 11% stake in Bharti Airtel through GDRs that will be listed on the Johannesburg Stock Exchange. The Indian telco will buy 36% of MTN for $7billion, at 86 rand per share.

Bharti will pick up an additional 20% by subscribing to fresh shares issued by the South African firm. If successful, the transaction will create a global telecom powerhouse, with more than 200 million subscribers and revenues of over $20bilion.

At the CMP, the stock trades at 13.6x its FY2011E EPS. We have an ACCUMULATE rating on the stock, with a Target Price of Rs457, including Rs65 as the value of the tower.