/ 28 July 2009

Deadline looms for MTN-Bharti merger talks

The countdown is on in merger talks between India’s top mobile firm Bharti Airtel and MTN to create an emerging market powerhouse.

The Indian company, which harbours big international ambitions, and MTN have pledged to negotiate only with each other until this Friday in a bid to wrap up a $23-billion alliance that would be India’s biggest cross-border deal.

The two companies might have to prolong their period of exclusive talks by several weeks due to the complexity of issues being discussed, analysts said.

But they expressed cautious optimism that a pact would be struck between MTN and Bharti, controlled by billionaire tycoon Sunil Bharti Mittal who turned a bicycle parts company into India’s leading cellphone firm by subscribers.

Merger negotiations between Bharti and MTN collapsed in acrimony a year ago after the South African company drove a stake into the India firm’s takeover aspirations with a counter-plan to assume
control of Bharti instead.

“I don’t think Bharti would have gone into talks a second time without thinking it could do a deal,” said Angel Broking analyst Harit Shah.

“My gut feeling is it will probably go through,” he said. “They seem to be treading cautiously and very carefully to make sure every issue is ironed out,”
Bharti and MTN have not discussed the talks publicly except to say they are still on.

“Due to confidentiality, I can’t say anything more,” Akhil Gupta, deputy chief executive officer of parent company Bharti Enterprises, said.

“The exclusive period of negotiations may [have to] be extended” as the two firms must “agree to the price and structure,” said Sanjay Chawla, senior vice-president at investment house Anand Rathi.

But “there could be an eventual deal,” he said.

The merged company, in which Bharti would have the largest stake, would have over 200-million subscribers and $20 billion annually in revenues and span Africa, Asia and the Middle East.

However, analysts said Bharti might have to sweeten its bid to win approval of shareholders of MTN, which many suitors have tried to drag to the altar and failed.

Bharti, in which Singapore Telecommunications has a minority holding, would be the biggest largest shareholder in the proposed merged group, taking a 49% stake in the SA company.

MTN shareholders would have an effective 36% stake in Bharti.

Speculation that an accord may be reached were stoked by a meeting between Bharti and MTN and senior officials of India’s telecoms ministry last week.

Bharti officials declined to comment about the talks but media reports said the two companies sketched out the structure of the potential cross-shareholding agreement to the ministry.

The rand has also been buoyed by investor hopes that a Bharti-MTN deal would bring significant foreign capital inflows.

If the deal goes ahead, Bharti says its finances are in a good position to fund it.

“While we’ve grown at a rapid pace, we’ve always maintained a very strong balance sheet. This enables us to think of big acquisitions,” said Gupta, Bharti Enterprises’ deputy chief executive.

The merger proposal is part of Bharti’s drive to keep up its growth momentum alongside its rapid push into rural India, home to 70% of India’s nearly 1,2-billion population, as the country’s urban cellphone markets become saturated.

“We need to expand our horizons and go out of India … The focus has to be on Africa, the Middle East and some other developing markets,” Bharti Enterprises chairperson Mittal told Forbes magazine this month.

“If we put these two companies together, we have the third largest telecom company in the world. In this business, I have learnt scale is everything.” – AFP