Bharti MTN Deal: Timeline,The Deal, Intricacies & Hurdles:All history

Background:

In May 2008, it emerged that India's telecommunication company Bharti Airtel was exploring the possibility of buying MTN Group of South Africa.

At that time it was reported that Bharti was considering offering US$19 billion for a 51% stake in MTN, which would be the largest overseas acquisition ever by an Indian firm.

However, talks fell through after a few days and Bharti Airtel pulled out of the proposed deal on May 24, 2008.

Two days later, it was reported that, Reliance Communications is in talks with MTN for a "potential combination of their businesses." However these talks also failed.

The talks resumed in May 2009 and situation is still unclear.

About MTN:

MTN Group is a South Africa-based multinational mobile telecommunications company, operating in many African and Middle Eastern countries.

MTN describes itself as "the leader in telecommunications in Africa and the Middle East" and as of early 2007 is active in 21 countries.

Since 2004, Africa has been the fastest growing mobile phone market in the world and attracted major players of the world due to Low penetration in the market.

About Bharti Airtel :

Bharti's business is structured into three individual strategic business units (SBU’s) - Mobile Services, Airtel Telemedia Services & Enterprise Services.

The mobile business provides mobile & fixed wireless services using GSM technology across 23 telecom circles while the Airtel Telemedia Services business offers broadband & telephone services in 95 cities and has recently launched a Direct-to-Home (DTH) service, Airtel digital TV.

The company provides end-to-end data and enterprise services to the corporate customers through its nationwide fiber optic backbone, last mile connectivity in fixed-line and mobile circles, VSATs, ISP and international bandwidth access through the gateways and landing station.

Globally, Bharti Airtel is the 3rd largest in-country mobile operator by subscriber base, behind China Mobile and China Unicom.

In India, the company has a 24.6% share of the wireless services market, followed by 17.7% for Reliance Communications and 17.4% for Vodafone Essar.

Timeline of Events:

May 5, 2008: It emerged that Bharti Airtel, an India-based telecommunications company, was exploring the possibility of buying MTN Group. MTN says it is in talks with Bharti Airtel. The Financial Times reported that Bharti was considering offering US$19 billion for a 51% stake in MTN, which would be the largest overseas acquisition ever by an Indian firm.

May 24, 2008: Bharti said that it has ended talks with MTN. The reason told was failing to agree on which firm will control a combined entity.

May 26, 2008: Reliance Communications comes into the scene. Reliance said that It has started a 45-day exclusive talks with MTN to discuss potential combination of their businesses. The talks were extended by two weeks in July 2008. The Talks were called off in July 2008.

May 25, 2009: Another announcement by Bharti and MTN to revive the merger talks.

May 27, 2009 : MTN's 4 top shareholder said that they will reject the tie-up.

However on a day after MTN's no. 2 shareholder Lebanon's Mikati family said that It will support merger talks with Bharti.

After a week, No. 1 shareholder of MTN, Public Investment Corporation said that it would support the deal provided there is a improvement in price.

July 3, 2009: State Bank of India offered a loan of up to $1 billion to Bharti to partly fund the Bharti's planned deal.

SEBI said that MTN and its shareholders can buy 36 per cent in Bharti Airtel via GDRs (Global Depository Receipts) , without triggering a mandatory open offer.

On July 14, Sunil Mittal said that he will resign from the board of Standard Chartered with effect from July 31. Standard Chartered is advising Bharti in the merger talks with MTN. Talks were extended.

August 3, 2009: Talks were extended till August 31, 2009. As per the proposal, Bharti would acquire 49 per cent shareholding in MTN and in turn MTN and its shareholders would acquire about 36 per cent economic interest in the Indian firm.

August 20, 2009: Bharti Airtel and South Africa's MTN once again extended their talks till Sep 30, 2009 with no final pact in sight even as the revised deadline of Aug 31.

What is the Deal:

This deal would create the world's third-largest mobile operator.

A merger of Bharti and MTN, the top mobile operators in both countries, would create an emerging markets giant with more than 200 million customers across India, Africa and the Middle East.

A combined entity would be the third-biggest mobile operator based on subscribers, behind China Mobile and Vodafone, although its annual sales of $20 billion would be dwarfed by China Mobile's $60 billion and Vodafone's $65 billion.

Africa being the last of less-penetrated markets in terms of mobile growth presents a big opportunity for global mobile firms.

Comparing the Figures:

Here is a comparison between Bharti Airtel and MTN Group. All figures in Million. For MTN [Dec ending FY07] and for Bharti Airtel [Mar ending FY08]

Wireless Subscribers base--MTN – 68 mn Vs Bharti Airtel 62 mn

Revenues – MTN $9,624 Vs Bharti Airtel $6,658

Net Profit – MTN $1,396 Vs Bharti Airtel $1,669

The deal is a complex one. Bharti will own 49 percent of MTN, and MTN will own 36 percent of Bharti.

Of that 36 percent, 25 percent will be held by MTN itself and 11 percent by its shareholders.

Bharti will buy 36% of MTN shares for 86 SAR + 0.5 new Bharti Share Each. The news share will be in the form of GDR. (Global Depository Receipts).

MTN will buy 25% in Bharti and will pay $ 2.9 Billion in Cash + 25% of its current share capital in newly issued shares.

In this deal Bharti will pay S 13 Billion $7.4 billion in cash and $5.6 billion in shares. Roghly MTN will spend $ 10.5 Billion. So the two numbers make it a deal worth $ 23 billion.

What are the Hurdles:

In India the foreign companies are allowed to be listed on Indian bourses through Indian depository receipts (IDRs), the Indian equivalents of American Depository Receipts (ADRs) or global depository receipts (GDRs).

Under this, the shares of companies registered overseas will be deposited with a custodian and the receipts issued against these shares will be traded on bourses.

However South African government has sought dual listing for MTN that would allow MTN shares – not depository receipts – to be traded on Indian and South African bourses simultaneously with equal voting rights.

Under dual listing securities are listed on more than one exchange for the purpose of adding liquidity to the shares and offering investors a choice on where they want to trade.

The South Africans want dual listing of Bharti-MTN shares for the deal between the telecom firms to go through, while India does not permit such a listing, as it would tantamount to capital account convertibility.

South African government asked the government of India to enter into an agreement before the September 30 deadline that would allow dual listing of MTN.

Dual listing needs major changes in the Indian legal system such as changes in the listing norms and allowing capital account convertibility and also changes under FEMA Act, it seems to be difficult implement such a changes under the current scenario.

What is the Current Situation?

On 23 September 2009, India's finance minister Pranab Mukherjee said that dual listing of a firm was not possible as per the existing laws.

On September 24, 2009 a a South African delegation met senior officials of Securities and Exchange Board of India and Reserve Bank of India to discuss matters related to the proposed Bharti-MTN deal.

The meeting, called by the ministry of finance to discuss the multi-billion dollar deal, is understood to have deliberated regulatory hurdles holding back the mega deal, including the issue of dual listing.

Finance Minister said that welcome the deal, but it should be in context of existing laws of the land. These have to be kept in mind.

However he said that the government is looking at the legal issues being faced in the merger, including dual listing.

Market regulator SEBI had recently amended takeover rules, making a 20 per cent additional offer mandatory for an investor who acquires 15 per cent of an Indian firm through American depository receipts or global depository receipts with voting rights.

The latest deadline for Bharti's exclusive talks with MTN will come on the last day of this month, September 30.

The deadline has earlier been extended twice.

What will be the outcome is unpredctable as the governments of the two countries, regulators, labor unions and shareholders all in the picture.