Bharti may seek MTN share-swap

Bharti Airtel, India’s leading mobile operator, may seek a merger or share swap with MTN Group to try to avoid a bidding war for the South African phone firm, analysts and media reports say.

The reports helped push up Bharti shares on Thursday after the stock had fallen sharply last week on investor concerns over funding a deal that could top $20-billion and the risk of a bidding war.

A successful deal would be India’s biggest foreign acquisition and create the world’s sixth-largest mobile operator, with more than 130-million subscribers in more than 20 countries.

“What I feel is they want to cool off the situation after some international players said they are also interested in MTN,” said RK Gupta, managing director of Taurus Asset management.

Emirates Telecommunications (Etisalat) said on Monday it was evaluating a possible bid for MTN, and China Mobile, the world’s biggest mobile carrier, has said it is interested in the South Africa market, but has not bid.

The Financial Times reported last week that Bharti had made an indicative bid of R165 per share for 51% of MTN, valuing it at about $37-billion. This week, the Asian Wall Street Journal said Bharti might raise that to R175.

Bharti has said it is in exploratory talks with MTN, but has made no bid. The head of SingTel, which owns 30,5% of Bharti, has said talks were “at an extremely preliminary, exploratory stage”.

Indian newspapers have speculated that Bharti may opt for a cash-and-stock deal, with the Economic Times saying on Thursday Bharti would value MTN at $45-billion to $50-billion and offer 60% of a deal in cash and the rest in shares.

Other papers put the cash-to-stock ratio at 30:70 and 50:50.

The Mint, citing people familiar with the talks, said the MTN board may consider a merger proposal as early as next week.

A spokesperson for Bharti declined comment on the reports.

Bharti and MTN could opt for “some sort of a joint venture with both having cross-holdings”, Gupta said.
“If such a thing really happens, it is a positive news as there are concerns about financing such a big deal.”

No hostile deal

JP Morgan analysts said in a recent report that a bidder would need to offer at least $20-billion for a 51% stake in MTN. “Furthermore, an all-cash deal for 100% of MTN appears very unlikely,” it said, a view shared by Morgan Stanley.

“We believe it is safe to rule out a 100% acquisition and that a majority stake is the more likely outcome,” said Morgan Stanley, which rates Bharti stock as “overweight”.

It ruled out a hostile deal, but noted MTN had had many suitors previously.

“Irrespective of whatever route they take, the key thing is what sort of valuation Bharti puts on MTN, because even in the case of a merger, valuation will come into play,” said an analyst with a Mumbai brokerage who asked not to be named.

Bharti shares closed up 0,9% at 856,20 rupees in a firm Mumbai market, extending Wednesday’s 3,3% gain. However, the stock is still down 4,2% since the talks were first announced late on May 5. - Reuters 2008

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