Govt steps back from MTN-Bharti deal

Johannesburg, 03 Sept 2009

The Department of Communications (DOC) is distancing itself from the MTN-Bharti deal, saying it has never indicated its support for the transaction.

Media reports emerged earlier this week indicating the department and, by extension, government had pledged support for the expected $23 billion deal. However, the DOC yesterday slammed the reports, saying it has not officially offered any support for the deal.

“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.”

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.

The PIC has expressed conditional support of the deal; however, it has also indicated it would prefer to see Bharti sweeten the offer, before it pledged to it entirely.

PIC CEO Brian Molefe has indicated he appreciates MTN's need to diversify its revenue stream, but the details still have to be nailed down. He added that support hinged on price and the extent of influence MTN would have in the merged entity.

Time constraints

Meanwhile, MTN and Bharti have until the end of this month to come to some sort of agreement. It seems MTN will not extend the talks for a third time, since MTN CEO Phuthuma Nhleko has said the company wants to reach an agreement as soon as possible.

The second extension at the beginning of last month had some in the industry concerned the deal may not go ahead. However, others believed the extension was a financing process and a conclusion was in sight.

MTN has now made an application to the South African Treasury for exchange control, indicating the deal is in its last phase.

“The National Treasury received an application via the South African Reserve Bank from MTN, which relates to various exchange control regulations. At this stage, we cannot provide any further comment on their application,” confirms Thoraya Pandy, head of communications at National Treasury.

The application could result in MTN and its shareholders taking a 36% stake in Bharti, of which MTN would own 25%, and Bharti would take a 49% stake in MTN. However, at the company's results presentation last week, Nhleko was quick to quell investor expectation on the final structure of the deal.

“This is an evolving situation and whatever was published then may well change, or may stay the same,” he said.

The deal will still face several sets of regulatory hurdles before it goes ahead, should the companies come to an agreement at the end of the month, including garnering the DOC's support.