| Bharti Airtel today said that it is holding discussions with South African telecom company MTN Group that are aimed at “combining the strengths of the two leading emerging markets players and, accordingly, is veering towards possible structures to achieve this objective”. |
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| The company also made it clear in a statement today that this may not require it to make any “bid” for MTN at all. |
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| Top bankers close to the deal said the statement is significant because it suggests that the two companies might look at a merger option (among other things) under which MTN shareholders could get a combination of cash and equity in Bharti Airtel in return for the Indian company acquiring control in MTN. |
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| It is not clear, however, how the merger would be structured, given that India has a foreign direct investment limit of 74 per cent and Bharti Airtel already has substantial foreign stakes from SingTel and other investors (see table). |
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| Bankers said the combine would create a large telecom behemoth with over 131 million subscribers spread in 23 countries closing in on the leading international telecom companies like Vodafone Plc, which have over 250 million subscribers across 25 markets, China Mobile with 392 million and America Movil (in Mexico) with over 159 million subscribers. |
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| MTN has a valuation of around $45 billion (which includes the premium as its market cap is around $36 billion). |
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| Banking circles said Bharti could pay 60 per cent in cash for the MTN stake and the rest could be offered to MTN shareholders as equity in Bharti Airtel. |
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| The deal would also ensure that the operations in the MTN group continue to be run by the current management under CEO Phutuma Nhleko, which also holds 13.06 per cent in the company through Newshelf 665. |
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| It would also ensure that the Mittals will not have to deal with black economic empowerment policies that stipulate shareholding and controlling votes to blacks in South African companies. |
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| Apart from the management, the Mikati family from Lebanon, which has supported Bharti, holds 9.82 per cent and investment company PIC has another 13.27 per cent stake. |
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| Bharti is also believed to have contacted a bevy of bankers to provide them with a bridge loan, including Indian banks like ICICI Bank and State Bank of India. |
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| An ICICI Bank spokesperson said that they do not speak on specific deals while SBI executives did not return calls. Even west Asian wealth funds are believed to have committed money to Bharti for the deal. |
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| Last week Bharti Airtel had issued a statement that it was in exploratory discussions with MTN but a deal might or might not fructify. |
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Bankers also say that the deal would lead the Mittals, who control the company through Bharti Telecom, which has a 45.31 per cent stake in the company, might have to dilute their holdings. But it will in one go catapult him into a global telecom league to reckon with.
| Bharti Airtel's main shareholders (in %) |
| Bharti Telecom |
45.31 |
| SingTel |
15.58 |
| Vodafone |
4.40 |
Public, FIIs
and others |
34.71 |
|
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| However, under the South African exchange rules Bharti has to make an open offer if it picks up 35 per cent. A partial offer is possible if Bharti has the support of 50 per cent of the shareholders (plus one shareholder) to waive the mandatory offer. |