IHS Global Insight Perspective | |
Significance | MTN and Bharti are once more in talks. |
Implications | The suggested deal would see Bharti take a 49% stake in MTN, while the South African group and its shareholders would take a 36% stake in Bharti. |
Outlook | We think there is a better chance of a deal happening in 2009. |
Bharti said in a statement 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 shares 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
- A Year Later: Bharti and MTN ended acquisitions talks a year ago 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 nixed partly by a dispute within the Indian group's ruling family, the MTN-Bharti deal failed as a result of a disagreement about the level of control to be had by Bharti. This time around both sides will negotiate as strongly as before, but there is more familiarity with the other's position. The global economy has also moved down from a situation where the developed world was most hit to where emerging markets are also suffering. As a result, IHS Global Insight thinks there is a better chance of the deal going ahead.
- Rationale Broadly the Same: The pressures currently felt by MTN and Bharti are different from May 2008. Bharti is facing the prospect of increased competition and price pressure at home, while both operators may need to deal with a combination of ARPU pressure and slower organic growth. Regulatory pressures in the form of roll-out obligations and pressure to reduce termination rates will continue. So while the main rationale for a tie-up is one of capturing future growth opportunity, the two sides are also keen to lower costs by combining equipment and handset procurement and other functions and generally wielding greater bargaining power.
- More Bids?: Although we think that there is a better chance of a deal going through this year than in 2008, it would not be a surprise if 31 July 2009 went by without a deal going through. Other parties, such as Reliance and perhaps China Mobile, which has long stated its interest in emerging market acquisitions, might be interested in placing a bid.