India’s Bharti Airtel and South Africa’s MTN on Monday extended their July 31st deadline further by one month to conclude exclusive merger talks. If successful, this merger will create the world’s third-largest mobile phone operator.
Bharti MTN had first announced that they were in merger talks on May 25th 2009. They had also announced a three months period for exclusive talks ending on July 31st 2009. Now, the extension by a month to August 31st indicates that both companies are thrashing out all complex issues and are keen to finalize their strategic alliance soon.
Both companies said in a joint statement on Monday, “This is further to our media statement dated May 25, 2009 on renewal of discussions regarding a potential transaction between Bharti Airtel Limited and MTN. Bharti and MTN had entered into an exclusivity agreement regarding the potential transaction until July 31, 2009. As discussions between the parties regarding the potential transaction are continuing, both parties have agreed to extend the exclusivity period up to August 31, 2009. ”
The statement added, “No decisions or agreement to acquire any shares or implement the transactions outlined above have been made by the Boards of either Bharti or MTN and the discussions may or may not lead to any transaction. The structure and terms of the potential transaction may be adjusted to reflect further discussions between the parties.”
ET had reported on July 22 that Bharti and MTN would extend the July 31 deadline for exclusive merger talks as both telcos would not be able to complete the due diligence process on each other’s books before this date. Bharti Airtel has appointed E&Y to study the books of the South African telco. MTN has given PwC the mandate to carry out a similar process on Bharti’s books.
The proposed $23-billion transaction involves a complex structure in which both entities would pay cash and equity to each other. The formula, if it works out, will result in Bharti Airtel getting a 49% stake in MTN and the South African telco a 36% interest in Bharti Airtel. This will also create the world’s third-largest telecom company with more than 200 million customers, over $20 billion in revenues and a footprint in Africa, Asia and the Indian subcontinent.
Analysts cite two reasons for extending the deadline. First, both telcos have failed to finalise the management structure of the combined entity, and second, small shareholders of MTN want Bharti to sweeten the deal.
But Bharti Airtel chairman Sunil Mittal had recently told the media that both telcos would retain the current management structure and operate as separate companies until they were able to implement a full merger within the next couple of years.
They are two separate companies and they will be run as two separate companies until we merge, that’s the vision we have, as and when that [a merger] is possible,” Mr Mittal had said in an interaction with an international publication last week.
“There’s a very good management team there which is … very successful. We have no intention of making any changes there,” Mr Mittal had added. The move is set to address political concerns in South Africa about selling a national champion and a vital asset to a foreign operator. Besides, this will enable MTN CEO Nhleko to head the telco throughout his contract, which expires only in June 10.
On July 28, MTN’s second-largest shareholder, Lebanon-based M1 run by the Mikati family, told international wire agencies that a tie-up with Bharti Airtel was likely only by the end of August.
“There are no major issues holding up the proceedings—it just takes time to finalise and address all the issues,” Azmi Mikati, chief executive of M1 Group, had said. As per MTN’s latest annual report, Mr Mikati is also the non-executive member of the company’s board.
“I think Bharti has a buffer of 5-7% on the price. So, if the deal needs to be sweetened, I think Bharti can do that,” Vivek Gupta, partner, BMR Associates told ET last week.
“I think the extension actually means the deal is more likely to happen. I think all the parties are keen to take all the time to ensure that it happens this time,” Angel Dobardziev, practice leader for emerging markets at London-based IT & telecom consultant Ovum told ET last week.
Last week, responding to a question on whether a deal had been finalised, corporate affairs minister Salman Khurshid told Parliament that any move to change Bharti’s shareholding structure would require government approval while adding that the deal had not been concluded.
Source: Economic Times