IHS Global Insight Perspective | |
Significance | The proposed US$24-billion transaction, which would have created the world's third largest mobile group by subscribers, was subject to a closing deadline of 30 September. |
Implications | The two companies had extended talks twice before, and the talks might have been further extended beyond the end of September, although given the complexity of the deal it comes as little surprise that the talks eventually broke down. |
Outlook | The breakdown of the MTN-Bharti transaction also comes shortly after Zain decided not to sell off its African assets, instead selling a 36% stake in the whole operator to a consortium of Indian and Malaysian investors. |
Bharti Airtel said in a statement that "Bharti and MTN have decided to disengage from their discussions when the exclusivity period ends on September 30, 2009," Agence France-Presse reports. MTN confirmed this in a company press release issued yesterday, saying that "MTN and Bharti have not been able to conclude a transaction within the economic, legal and regulatory framework within which both companies operate. Accordingly, MTN and Bharti have mutually decided to terminate further discussions regarding the potential transaction."
Bharti added that the South African government "has expressed its inability to accept it (the proposed deal) in the current form" and "in view of this, both companies have taken the decision to disengage from discussion." The company added it hoped "the South African government will review its position in the future and allow both companies an opportunity to re-engage".
Following the collapse of talks between the two companies in 2008, in May MTN and Bharti Airtel announced that they were starting fresh talks to explore a potential transaction (see sub-Saharan Africa – India: 25 May 2009: Bharti, MTN in Acquisition Talks).
Structure of the Proposed Transaction
Bharti said in a statement in May 2009 that it was discussing taking a 49% stake in MTN in return for MTN and its shareholders taking a 36% stake in Bharti Airtel. MTN would directly hold a 25% stake in Bharti and MTN shareholders a further 11%. According to the statement, the transaction would proceed as follows:
- MTN would acquire an approximately 25% post-transaction economic interest in Bharti for an effective consideration of approximately US$2.9 billion in cash and newly issued shares of MTN equal to approximately 25% of the currently issued share capital of MTN.
- Bharti would acquire approximately 36% of the currently issued share capital of MTN from MTN shareholders for a consideration comprising 86.0 rand (US$9.2) in cash and 0.5 newly issued Bharti share in the form of Global Depository Receipts (GDR) for every MTN share acquired, which, in combination with MTN shares issued in part settlement of MTN's acquisition of an approximately 25% post-transaction economic interest in Bharti, would take Bharti's stake to 49% of the enlarged capital of MTN. Each GDR would be equivalent to one share in Bharti and would be listed on the securities exchange operated by JSE Limited, South Africa.
Outlook and Implications
The proposed US$24-billion transaction would have created the world's third largest mobile operator. MTN said that the potential transaction was consistent with its stated vision and would create a leading telecom service provider group aligning Bharti's market-leading Indian business with MTN's market–leading African and Middle Eastern operations. MTN reported 103.187 million subscribers as of 30 June 2009 and Bharti Airtel reported 105.2 million subscribers at the end of July 2009 (see sub-Saharan Africa: 27 August 2009: MTN Reports 39% Y/Y Increase to 103.2 mil. Subscribers in June and India: 21 August 2009: India Adds 14.4 mil. Mobile Subscribers in July).
Having sought unsuccessfully to conclude a deal in 2008, the two operators were clearly keen to conclude the deal this time around. Bharti and MTN ended acquisitions talks in 2008 without sealing a deal (see sub-Saharan Africa: 26 May 2008: MTN Ends Talks with Bharti, Opens New Discussions with Reliance). At the time, they were "not able to reach agreement on a suitable transaction structure".
MTN went on to hold talks with Reliance, another Indian operator, but these also foundered. Although an MTN-Reliance deal was not concluded partly because of a dispute within the Indian group's ruling family, it also failed as a result of a disagreement about the level of control to be had by Bharti.
The collapse of the MTN-Bharti transaction also comes shortly after Zain decided not to sell off its African assets, instead selling a 36% stake in the whole operator to a consortium of Indian and Malaysian investors (see Middle East and North Africa: 9 September 2009: Malaysian and Indian Consortium to Buy 46% of Zain). After several months of consideration, Zain finally managed to sell off a 46% stake to a consortium made up of India's Vavasi Group, regional telecom companies Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL), and Malaysian billionaire Syed Mokhtar al-Bukhary. The 46% stake purchase valued the operator at US$13.7 billion.
In August, Zain confirmed that it was in talks with three international operators to sell all or part of its African operations (see sub-Saharan Africa: 17 August 2009: Zain in Fresh Talks to Spin Off African Assets—Report). Rumours had been circulating about the possible sale of Zain's operations in sub-Saharan Africa ever since French giant Vivendi called off talks to buy a majority stake in the African business in July (see sub-Saharan Africa: 21 July 2009: Vivendi Suspends Talks with Zain over Acquisition of Majority Stake in African Operations).