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Market relieved at MTN-Bharti collapse

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 05 Oct 2009

Unions and investors are relieved that the multibillion-dollar deal between MTN and Bharti Airtel has collapsed.

The deal came to a dramatic 11th hour end last Wednesday, when the companies cited regulatory hurdles as the reason for the end of talks, which would have created the world's third-largest cellular operator, with more than 200 million subscribers.

Shares in both companies have rallied dramatically after the exclusive talks collapsed, with MTN and Bharti up 5% on Thursday. On Friday, MTN closed 2% higher, an indication that the price is no longer being held captive by Bharti's offer.

The Public Investment Corporation (PIC), which is MTN's largest shareholder, with 13.5% at the end of last year, is mum on the collapse of talks. However, the state entity had initially indicated it was in support of a merger - but at a better price.

Bharti subsequently increased the cash component of its offer for a 49% stake in MTN to $10 billion, from a proposed $7.6 billion, taking the value of the deal to $24 billion.

PIC CEO Brian Molefe previously said there were two main issues that would determine whether PIC gave its official support - the price, and the extent of influence that MTN would enjoy in the new merged entity.

Too cheap

Coronation Fund Managers, which holds 5% of MTN, has also expressed relief at the end of the talks. Portfolio manager Pallavi Ambekar says the fund is “positive that the deal has been called off” and felt the original offered price was not attractive enough.

Chris Gilmour, an analyst with Absa Investments, says - while the fund was ambivalent about the deal - “on balance, we are happier that we have a clearer vision about where MTN is going”.

He says the improvement in share price after the deal was called off “speaks volumes... No one really wanted the deal... and they're happy it's not happening”. Absa has a small stake in MTN.

Investec investment analyst Rob Forsyth says the market had been expecting the shares to rally, as MTN had been under-performing its peers by as much as 15%. He says the end of talks now frees the script to move to where it should be.

Forsyth says the deal did have strategic merit, but Investec was concerned about the price being too cheap, and the proposed structure of the deal. The company holds an undisclosed amount of shares in MTN.

In favour

MTN's second-largest shareholder, the M1 Group, seems to be in favour of the deal being resurrected a third time.

CEO Azmi Mikati was quoted by India's Economic Times as saying: “With time, I am confident we'll overcome any regulatory hurdles and achieve our long-term objectives.” The group did not respond to ITWeb's request for comment.

Solidarity spokesman Jaco Kleynhans says, although the union was not opposed to the deal, it is relived that jobs will not be sacrificed, a concern it had raised last month.

The union says: “Local job creation and job security must be the first priority. Mergers between companies and the resulting duplication of posts have led to job losses in many cases in the past.”

Patrick Craven, national spokesman for the Congress of South African Trade Unions, says the federation was not concerned about the deal. However, had it gone ahead, it would have looked closely at issues such as the ownership structure and whether jobs would have been sacrificed.

The initial announcement, in May, indicated that Bharti would acquire 49% of MTN, while MTN and its shareholders would acquire 36% of Bharti, of which MTN would hold 25%.

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