MTN dumps Bharti, woos Reliance

Johannesburg, 26 May 2008

South African-headquartered cellular operator MTN has swapped negotiations with one Indian operator for another.

In a statement to shareholders this morning, MTN confirmed it had not been able to reach "agreement on a suitable transaction structure" with Bharti Airtel. A minute later, it issued a new cautionary revealing it is in discussions with India-based Reliance Communications Group regarding a "potential business combination".

In a similar statement, Reliance revealed these negotiations would be exclusive for a period of up to 45 days.

Company chairman Shri Anil Dhirubhai Ambani said: "We are delighted to be engaged in exclusive negotiations with MTN Group to achieve a partnership, which would provide investors, customers and the people of both companies a unique and global platform for exponential growth, creating substantial long-term shareholder value."

Better option

<B>Reliance Communications</B>

Founded by the late Shri Dhirubhai H Ambani, Reliance Communications is the flagship company of the Reliance Anil Dhirubhai Ambani Group. This group has a market capitalisation of over $75 billion, net worth in excess of $14 billion, cash flows of $2.8 billion, net profit of $1.9 billion and zero net debt.
The company has a customer base of over 48 million, including over 1.5 million individual overseas retail customers, and ranks among the Top 10 Asian Telecom companies by number of customers.
It has established a pan-India, next-generation, integrated (wireless and wireline), convergent (voice, data and video) digital network capable of supporting best-of-class services spanning the entire infocomm value chain, covering over 15 000 towns and 400 000 villages.
Reliance Communications owns and operates the world's largest next-generation IP-enabled connectivity infrastructure, comprising over 165 000km of fibre optic cable systems in India, US, Europe, Middle East and the Asia Pacific region.
(Source: Reliance Communications)

Frost & Sullivan telecommunications analyst Lindsey Mc Donald says brand positioning is a key factor in the negotiations with both Bharti and Reliance.

"MTN has spent a lot of money and time on developing its brand. It doesn't surprise me that MTN proposed a merger counter-offer to Bharti as it meant it would be able to hold onto that brand in some form. The same is possible with Reliance," she explains.

In fact, a merger with Reliance could be "quite beneficial" as it gives MTN deeper pockets to continue its aggressive acquisition strategy, adds Mc Donald.

"Reliance Communications is part of a highly divested company which has interests in everything from oil extraction to fast-moving consumer goods. It has also shown time and again that it is willing and able to pursue a strategy which seeks to take over a whole value chain, which could be to MTN's benefit."

However, both sides of the table will need to consider the issue of control. At this stage, Mc Donald says it could go either way.

"MTN looks like it wants control of a merged entity so that it can drive its brand and strategy. This makes sense; why change a formula which has been so successful? However, Reliance would have no problem swallowing another company into its fold. Both sides will also need to keenly address organisational culture. In a situation like this, one personality clash and it could all change."

MTN's executive committee is in meetings all day and is unavailable for comment.

Within minutes of trade opening this morning, MTN shares had lost 7%. By 10.30am, 5.5 million MTN shares had swapped hands, with the company trading at R147.05, which is 6.34% down on Friday's close of R157.