3rd UPDATE: Bharti Airtel, MTN End Exclusive Merger Talks
01 October 2009 - 3:09AM
Dow Jones News
Bharti Airtel Ltd. (532454.BY) and South Africa's MTN Group Ltd.
(MTN.JO) Wednesday ended exclusive merger discussions for a second
time, as regulatory hurdles proved insurmountable.
In a statement, Bharti cited the South African government's
disapproval of the deal structure in its current form as the reason
for the collapse of the talks, while MTN attributed their failure
to the "economic, legal and regulatory framework" in which the
companies operate.
South Africa's National Treasury said the deal was outside the
country's exchange control framework and required the approval of
the Minister of Finance.
The structure of the proposed $24 billion deal would have seen
Bharti acquire a 49% stake in MTN, while MTN would have bought a
36% stake in Bharti.
However, under rules brought in by India's Securities and
Exchange Board in September, MTN would have needed to make a
mandatory offer for another 20% of Bharti on top of the original
36%, pushing the foreign investment in Bharti over the 74% limit as
there are other foreign investors on the Indian mobile operator's
share register.
In addition, the South African government demanded a
dual-listing, something that Indian regulations prohibit, to
reflect the status of MTN as a national champion. MTN operates in
21 African and Middle Eastern countries. Bharti Airtel is India's
largest mobile operator by subscribers.
A combined Bharti-MTN would have created the world's
third-largest mobile phone operator by subscribers behind China
Mobile Ltd. (CHL) and Vodafone Group PLC (VOD), with about 200
million customers and revenue of more than $20 billion.
MTN, in a statement to the Johannesburg Stock Exchange,
expressed appreciation for the cooperation and supportive approach
of both the Indian and South African governments.
"This structure needed an approval from the government of South
Africa, which has expressed its inability to accept it in the
current form. In view of this, both companies have taken the
decision to disengage from discussion," Bharti Airtel said.
South African officials visited their Indian counterparts late
last week to press for a structure that would allow the companies
to maintain separate sets of shareholders and still combine cash
flows and operations, rather than a traditional merger. But such a
"dual-listing" structure would require significant changes to
Indian corporate law.
"This seems more like a call by the governments. The Bharti
stock is likely to outperform markets by 5%-6% tomorrow," said
analyst Nishna Biyani at Mumbai-based brokerage Prabhudas
Lilladher.
"As a skeptic we've said that one way of getting a deal derailed
is to involve the government," said London-based analyst Martin
Mabbutt at Nomura, adding that ultimately he believes the breakdown
of the deal was a good thing because the price Bharti was prepared
to pay for its stake in MTN was too low and the synergy benefits
weren't achievable. Nomura has a buy rating and ZAR132.60 target
price on MTN.
MTN has failed several times to secure a tie-up that would have
launched it into the Indian market. Earlier talks with Bharti broke
down in May 2008 when the companies couldn't agree on issues of
control. MTN then began talks with rival Reliance Communications
Ltd. (532712.BY) but they also failed.
Bharti, like other wireless operators in Asia, has been looking
at emerging markets for growth to help boost its revenue base.
Africa remains one of the largest undeveloped markets for telecoms
companies.
Bharti Airtel’s shares closed flat at INR418.55 on the Bombay
Stock Exchange Wednesday.
Trading in MTN shares was suspended on the Johannesburg Stock
Exchange until Oct. 1.
-By Rumman Ahmed & R Jai Krishna and Kathy Sandler, Dow Jones Newswires; 91-9845104173; rumman.ahmed@dowjones.com