/ 24 May 2008

Bharti hangs up on MTN merger talks

India’s top cellular company, Bharti Airtel, on Saturday called off merger talks with MTN, branding the ownership structure proposed by the flagship South African mobile firm ”completely unacceptable”.

The merger would have created the world’s sixth-largest mobile company with a network of 130-million subscribers that would have dominated two of the world’s fastest growing emerging wireless markets — India and Africa.

”Bharti has decided to disengage from the ongoing talks,” the company headed by billionaire founder Sunil Bharti Mittal said in a statement.

The talks collapsed over a new ownership structure proposed by Johannesburg-based MTN that would have involved ”Bharti Airtel becoming a subsidiary of MTN,” the New Delhi-based company said.

”Bharti’s vision of transforming itself from a home-grown Indian company to a true Indian multinational telecom giant, symbolising the pride of India, would have been severely compromised,” it said.

”This was completely unacceptable to Bharti,” it said.

Meanwhile India’s Business Standard newspaper reported that Reliance Communications, owned by Indian tycoon Anil Ambani, began talks last Thursday with MTN to acquire a majority stake.

RCom, which the paper said held unsuccessful talks last year with the South African firm, declined comment.

Bharti, 30,5% owned by SingTelNet, was unlikely to return to the negotiating table as MTN’s new proposal was not acceptable to the Indian company, analysts said.

”It could have been a win-win situation for both operators, so in that sense there’s an opportunity missed,” but the new MTN proposal ”clashed with their [Bharti’s] vision,” said Madhusudan Gupta, analyst at international consultancy Gartner in Singapore.

”I think this is the end of it [the negotiations]. It’s just not acceptable” to Bharti, said analyst Ramdeo Agrawal of India’s Motilal Oswal Securities.

Analysts had valued MTN, whose shares had soared since the merger talks were confirmed in early May, at up to $50-billion.

Bharti had wanted to take 51% control of MTN in what would have been India’s biggest overseas merger and created an empire embracing the Indian subcontinent, all of Africa and West Asia.

But MTN, which serves 21 markets in Africa and the Middle East and is Africa’s leading mobile operator, was keen to ensure the transaction was seen in South Africa as a ”merger of equals” at the very least, reports had said.

MTN’s management ”is obviously very close to the South African government and might not wish to do something which might be seen as politically unacceptable or wrong from the South African standpoint,” Dalibor Vavruska, analyst at ING Baring, told India’s CNBC-18 channel.

Bharti, which wished MTN ”the very best”, said discussions continued late into the night Friday ”without a breakthrough”.

The two sides reached an ”in-principle agreement” May 16 that was presented to MTN’s board last Wednesday, Bharti said.

MTN then came back with ”a completely different structure from what was agreed” which resulted in the abandonment of the talks.

Bharti said the talks were conducted according to its principle not to ”engage in a bidding war”. At the same time it said it had lined up funding from European and US bankers worth over $60-billion.

It added it would ”continue to look at opportunities consistent with its vision to be a true Indian company that plays a significant role in transforming global telecommunications.”

The announcement was expected to relieve investors in Bharti whose shares had dropped over six percent since the announcement of the talks on worries the merger would strain the company’s balance sheet. – Sapa-AFP