MTN, Reliance shares climb

By Christelle du Toit, ITWeb senior journalist

Johannesburg, 07 Jul 2008

The market essentially has to "hurry up and wait" as the window period for exclusive talks between South African cellphone operator MTN and Indian telecoms player Reliance Communications draws to a close tomorrow.

Both parties are holding their cards close to their chests, as Reliance said it will comment tomorrow, and MTN had not replied to requests for comment by the time of publication.

MTN has been in talks with Reliance since the end of March, when the Indian player secured a 45-day period for exclusive talks.

These relate to an undisclosed share-swap between the two companies, as well as a possible buyout of MTN shares for between $4 billion and $5 billion, to bring Reliance's MTN stake to a possible total of 34.9%.

Reuters reports that the companies may extend their talks.

An extension would give Reliance Communications' chairman Anil Ambani some time to try to resolve a claim, by his estranged brother, Mukesh, of right of first refusal on the shares. Mukesh Ambani runs Reliance Industries, India's largest company, reports Reuters.

MTN is nervous about entering a deal with a legal cloud over it, and has looked at ways to restructure a transaction, the report says.

On Friday, Reliance's shares surged 12.5% on expectations of extended talks, or some kind of indication of what direction the deal would take.

MTN's share was trading at R124.59 on the JSE late this morning, up R3.59 or 2.97% on Friday's close.

This morning, Reliance company secretary Brekash Senoy told ITWeb the company would not comment on its position until tomorrow, when it would most likely issue a statement.

MTN is in a closed period.

Sharp operator

Frost & Sullivan industry analyst Lindsey McDonald believes the talks between the companies will be extended, as the sheer complexity of the kind of deal that is being negotiated will necessitate it.

"I think about two-thirds of the delay in getting the deal done can be attributed to this," she says, explaining that the last part can be put down to what has been labelled a family "feud".

However, she believes the deal makes strategic sense, due to the aggressive nature of both companies.

Also, she says MTN needs to take things "to another level"; something Reliance's capital injection can help it do.

Kaplan Equity Analysts MD Irnest Kaplan says concrete information on the much-hyped deal has been thin. "I don't think anyone really knows what is happening - they've just been going off media reports and some speculation," he says.

However, he believes it is a good idea for MTN to get exposure in India and warns against overexcitement.

"MTN is very sharp and has been doing this for years, namely to keep expanding, and to keep getting more exposure," he says.

"They have a very strong corporate team looking at this. They'll know the deal's value very well and MTN will be doing its normal thing."

Before the Reliance talks, MTN was talking to another Indian operator, Bharti, a process that was terminated after a suitable transaction structure could not be agreed upon.

One of the reasons believed to have been behind those talks ending is that Bharti wanted a controlling stake in MTN, something that was turned on its head when MTN started gunning for Bharti instead.