Bharti blames SA govt

The breakdown in discussions with local mobile giant MTN is the South African government's fault, says Bharti Airtel.

“The structure needed an approval from the government of SA, which has expressed its inability to accept it in the current form. In view of this, both companies have taken the decision to disengage from discussions,” Bharti said in a statement.

The negotiations between MTN and Bharti, which began in May, could have resulted in the world's third-largest mobile operator, with more than 200 million subscribers. The first proposed structure - which is likely to have morphed somewhat since discussions began - would have given Bharti a 49% stake in MTN. In turn, MTN's shareholders would have taken up a 36% stake in Bharti, of which MTN would own 25%.

This is the second time the companies have conducted negotiations and the second time an agreement could not be reached. Last year, talks between the companies failed because Bharti felt MTN wanted to make the Indian company a subsidiary.

Government had hedged its bets on the deal, playing primarily on the fence, neither demanding the deal closed, nor offering support. In a statement at the beginning of September, the Department of Communications said: “We wish to put it on record that the department and/or the government have not taken a stance on the issue as discussions between the parties are ongoing. It is, therefore, incorrect that government has offered its support for the proposed tie-up at this stage, as reported in the media.”

Communications minister Siphiwe Nyanda reiterated yesterday that he would prefer MTN to remain a South African company.

MTN has a large government shareholding in the form of the Public Investment Corporation (PIC), which owned 13.5% of MTN at the end of the 2008 financial year. The PIC is wholly-owned by government, with the minister of finance as its shareholder representative.

Finance minister Pravin Gordhan says government is not to blame for the dissolution of talks between the companies. “In principle, the South African government is supportive of local companies that want to grow and diversify offshore from a domestic base.”

regulatory framework for such transactions, they require the approval of the minister of finance. “This was the case with the proposed MTN-Bharti merger, which required certain exchange control and other approvals.”

He said government is now looking at working with India to build a basis for developing “mutually beneficial mechanisms for such mergers”. Gordhan added that India's finance department has been invited to continue building on a framework that will support growth and expansion.

Chris Gilmour, an analyst with Absa Investments, says government should not be blamed. “The Indians are, to my mind, as much to blame.”

He says the end of the deal is “disappointing” and a waste of MTN's money. “This must have cost a few hundred million... I think, surely, the advisers should have advised them better.”

However, he adds that the end of exclusive talks does not mean Bharti and MTN may not have a third attempt at a merger or takeover. “I think MTN management is keen to sell. MTN has never been afraid to face a deal a second or even a third time.”

Gilmour says the deal could go back on the table if the regulatory issues are sorted out. He adds the mobile operator is ripe for being taken over by another mobile giant, such as China Telecom, which is owned by the Chinese government.

Meanwhile, the collapsed talks caused MTN something of a headache. Late yesterday afternoon, investors got wind of leaked information that indicated the deal had been called off. Investors went into a selling frenzy, and MTN called on the JSE to suspend trade of its shares.

Before shares were suspended, 7.4 million stocks changed hands, while MTN's average is about 5.6 million a day. According to the JSE, trading in MTN shares will resume today. MTN closed down R1.15 yesterday, following the announcements at halt of share trade.

The rand also took a knock yesterday, sliding 2.5% against the dollar compared to yesterday's close.

MTN's financial announcement on the JSE alert service says the regulatory environment in both countries made the deal impossible. “Shareholders are advised that MTN and Bharti have not been able to conclude a transaction within the economic, legal and regulatory framework within which both companies operate. Accordingly, MTN and Bharti have mutually decided to terminate further discussions regarding the potential transaction.”

MTN has declined to comment further on the deal.

Frost & Sullivan senior ICT analyst Lindsey Mc Donald says she was surprised at the way in which the deal was ended, as the Stock Exchange News Service announcement came at almost the 11th hour.

However, while Mc Donald was also expecting an extension of exclusive talks, she was not completely surprised the deal did end due to regulatory hurdles. She says there is a possibility the two operators may start talks again, but the regulatory issues would have to be resolved.

MTN shares were trading up 5% at R128.50 just after noon today.