The proposed deal
between Bharti Airtel and MTN will not violate the foreign direct investment norms. At the same time, as the deal is not a pure acquisition, but getting completed under a scheme, a company source said it would not trigger an open offer by MTN for Bharti’s shares
as per SEBI norms.
In the deal, MTN and its shareholders put together will hold 36.37% in Bharti. In the first leg of the deal, Bharti will buy 36% of MTN’s existing 1.89 billion shares from shareholders . The company will pay 86 rands per share and freshly issue half-shares of Bharti. That means that Bharti will issue 340 million of its shares to MTN’s existing shareholders.
This will take Bharti’s paid up capital from the existing 1.90 billion shares of Rs 10 each to 2.24 billion shares. At the same time, Bharti will also pay $7.03 billion as cash.
In the second leg of the deal, MTN will take 25% of the post deal equity capital of Bharti. For this, MTN will pay $2.9 billion to Bharti along with 25% of its current paid up capital. Now, MTN will acquire 25% of the post-deal equity capital, which has already become 2.24 billion shares after the first leg of transactions. This will enlarge Bharti’s capital to 2.99 billion shares, of which 750 million shares will be issued to MTN.
As the paid-up capital of Bharti Airtel gets expanded by 57.37% to 2.99 billion shares from 1.9 billion shares, the holding of MTN’s shareholders, who will be issued 340 million shares in the first leg of the transaction , will become only 11.37%. MTN will directly hold 25% in Bharti as per the second leg of the deal. The total holding of MTN and its share holders in Bharti will be 36.37%.
At this point, Singapore Telecom (SingTel) holds around 37.15% in Bharti. But in the expanded base, this will be reduced to 23.60%. Besides, FIIs’ current holding in Bharti is 20.72%. In the expanded capital of the post deal situation , this will come down to 13.17%. Therefore, the total foreign holding in Bharti will be 73.14%, which is still below the permitted level of 75% in telecom sector.
Besides buying a 36% stake in MTN from its existing share holders in the first leg of the deal, Bharti is also acquiring 25% of the current capital of the South African major, which will be newly issued. Therefore, this will lead to expansion in the paid up capital of MTN by 25% from 1.89 billion to 2.36 billion. But, because of this, Bharti’s holding in the expanded capital of MTN will be 48.8%.
At the end of the deal, MTN and its shareholders will hold 36.37% in Bharti. According to SEBI norms, if an acquirer takes more than 15% in a company , it must give an open offer to minority share holders to buy out their holdings in the company. But a senior merchant banker said that the deal is not purely acquisition but has gone through a scheme of arrangement, which has to be approved by the board. Hence, it will not require MTN to give an open offer.
However, MTN’s shareholders will get $7.03 billion in cash. And Bharti will have to bear a net cash outgo of $ 4.14 billion as it will also get $2.89 billion cash from MTN. At the same time, MTN’s shareholders will get 162 rand per share (each half-share of Bharti being valued at Rs 428.95) as against last year’s offer of around 170 rand per share.
That’s a significant markup on the present price of around 125 rand per share that’s being quoted at present in the market.
Source: Economic Times