MTN, Bharti deal drags on

By Nicola Mawson, Contributing journalist

Johannesburg, 03 Aug 2009

MTN has extended exclusive talks with Bharti Airtel, over a proposed merger, until the end of this month; a sign that analysts say is encouraging.

The companies had initially agreed to talk exclusively with each other until the end of last month, a deadline that passed without any comment from MTN. This morning, however, MTN says “discussions between the parties regarding a potential transaction are continuing”.

No deal has yet been agreed to, says Africa's largest cellular operator. It cautions that “discussions may or may not lead to any transaction and the structure and terms of the potential transaction may be adjusted to reflect further discussions between the parties”.

The Bank of America, Merrill Lynch and Deutsche Bank are advising MTN on financial aspects of the deal, and international firm Freshfields Bruckhaus Deringer is supplying its legal advice.

MTN and Bharti said on 25 May that they were in “exclusive” talks around a merger, which is expected to be worth $23 billion. If the deal goes ahead, the combined entity would have a subscriber base of more than 200 million.

Should the deal proceed, MTN and its shareholders would end up with a 36% stake in Bharti, of which MTN would own 25%. Bharti would acquire 49% in MTN.

Loose ends

Reports have emerged that the companies are already investigating the mechanics of the deal, and have been talking to banks to arrange finance.

Thoraya Pandy, National Treasury spokesperson, says MTN has been in contact with the department to “understand the regulatory issues”.

However, no formal application has yet been lodged, so there are no details about what exchange-control-related and other approvals would be required, she says.

Should the companies decide to go ahead with the deal, it would have to be approved by a number of institutions, including the competition authorities.

Nandi Mokoena, head of strategy and stakeholder relations at the Competition Commission, says the authority has not yet received a filing from the two parties seeking permission to merge.

India's The Economist reports that Indian regulations would require approval from the department of telecoms, as well as the Foreign Investment Promotion Board.

The Indian cellphone operator has also applied to India's Securities and Exchange Board for permission to enter a partnership, Dow Jones quotes the country's corporate affairs minister, Salman Khurshid, as saying last week.

Looks likely

Frost & Sullivan senior ICT industry analyst Lindsey Mc Donald says the extension of the exclusivity period indicates both companies are positive about the merger going ahead.

“It is clear there are a lot of synergies between the two companies that could work to their advantage. The fact that the period has been extended is likely to mean that both companies feel as if there is a good prospect for some type of agreement,” Mc Donald explains.

She says MTN has twice previously been in talks that did not end in a merger, abandoning the discussions. “The relatively short extension would suggest they mean to complete this process one way or another without much more delay.”

Irnest Kaplan, MD of Kaplan Equity Analysts, says Bharti has the will to conclude the deal, and MTN management seems to be keen to keep talks going.

However, Kaplan cautions that too much should not be read into the deal. “It remains to be seen if MTN shareholders like the final proposal.”

Kaplan expects another extension, as the deal is complex.

Imara SP Reid analyst Stephen Meintjes says the announcement is “encouraging”. However, he adds the statement must be taken at face value.

He notes the deal would require permission from many regulators. “It is possible there are inferences to be made that they are now thrashing through regulatory hurdles.”

MTN's two largest shareholders are in favour of the deal - the Public Investment Corporation, with a 13.5% stake in the cellular company, and the second largest shareholder, the M1 Group, with a 10.2% stake.