Bharti Airtel Ltd and South Africa’s MTN Group have restarted merger talks to create a $20-billion (in revenue terms) emerging markets telecom entity, a year after previous talks broke down over who would control the merged entity.
Bharti said the potential value of the deal in which both firms pay cash and stock for stakes in each other, was more than $23 billion.
If the merger goes through it will create a company with 200 million mobile subscribers spread across 24 countries in Asia, Africa and the Middle East. A combination of MTN, worth $27 billion, and Bharti, valued at $34 billion, would be among the top 10 global industry players. It would also be India’s biggest cross border deal, almost twice the size of Tata Steel Ltd’s near $13-billion acquisition of UK’s Corus in 2006. The two companies are exploring a potential transaction whereby MTN and its shareholders would acquire 36 per cent stake in Bharti Airtel.
At the same time Bharti would acquire 49 per cent shareholding in MTN. Both the companies have agreed to discuss the potential transaction exclusively with one another until July 31, 2009.
Mr Sunil Bharti Mittal, Chairman and Managing Director of Bharti, said, “Both companies would stand to gain significant benefits from sharing each other’s best practices in addition to savings emanating from enhanced scale. We see real power in the combination and we will work hard to unleash it for all our shareholders.”
According to a complex deal being worked out, MTN would acquire a 25 per cent post-transaction economic interest in Bharti for an effective consideration of $2.9 billion in cash and newly issued shares of MTN equal to 25 per cent of the currently issued share capital of the South African company.
Bharti would acquire 36 per cent of the currently issued share capital from MTN shareholders for a consideration of South African Rand (ZAR) 86 ($10.4) in cash and 0.5 newly issued Bharti shares in the form of Global Depository Receipts for every MTN share acquired. This, in combination with MTN shares issued in part settlement of MTN’s acquisition of approximately 25 per cent in Bharti, would take the Indian company’s stake to 49 per cent of the enlarged capital of MTN. Each GDR would be equivalent to one share in Bharti and would be listed on the securities exchange operated by Johannesburg Stock Exchange Limited. The deal will not trigger the need for an open offer by the Indian company.
“The broader strategic objective would be to achieve a full merger of MTN and Bharti, as soon as it is practicable,” said a press release.
Governance rights
Bharti would have substantial participatory and governance rights in MTN enabling it to fully consolidate the accounts of MTN. The South African company’s economic interest in Bharti would be equity accounted and would have appropriate representation on the Bharti board
Mr Phuthuma Nhleko, CEO of MTN, said, “The potential transaction addresses our strategic imperative of becoming one of the pre-eminent emerging market telecommunications companies with leading positions in three of the fastest growing wireless markets globally with no overlapping footprint.”
MTN was also in talks with Reliance Communications last year for a possible merger. The deal did not work out after Mukesh Ambani-led Reliance Industries claimed first right to RCom’s shares.
Source: The Hindu Businessline