India’s largest telecom company Bharti Airtel and South Africa-based telecom giant MTN on Monday started negotiations for a merger.
If successful, the talks will result in a $20 billion (Rs 95,000 crore) megacorp with over 200 million subscribers.
The merged entity would have a footprint in 23 countries — MTN’s 21 in Africa and West Asia; and Airtel’s two (India and Sri Lanka). Africa is the world’s next great telecom market.
In terms of subscribers, the new entity would be the world’s fourth largest, after China Mobile, Vodafone and Telefonica.
On Monday, Airtel said MTN and its shareholders would acquire about 36 per cent “economic interest” (the sum of direct and indirect shareholding in a company, according to Airtel sources) in it, of which 25 per cent would be held by MTN directly and the rest by MTN’s shareholders. Airtel would acquire about 49 per cent shareholding in MTN.
“The deal is innovatively structured in a manner which minimises financial exposure for both while maximising convergence of economic and governance rights without diluting control of either side,” said Subodh Aggarwal, chairman, Euromax Capital, a London-based investment bank.
The size of the two-way deal is $23 billion (over Rs 100,000 crore).
“The broader strategic objective would be to achieve a full merger of MTN and Bharti,” said a statement issued by Airtel.
“Both companies would stand to gain significant benefits from sharing each other’s best practices in addition to savings emanating from enhanced scale,” said Sunil Bharti Mittal, chairman and managing director of Bharti Enterprises.
“The rationale for this potential transaction between MTN and Bharti is highly compelling,” said MTN CEO Phuthuma Nhleko.
“It addresses our strategic imperative of becoming one of the pre-eminent emerging market telecommunications companies with leading positions in three of the fastest growing wireless markets globally —- India, Africa and the Middle East — with no overlapping footprint.”
MTN is offering $2.9 billion in cash and 25 per cent of its own equity to acquire 25 per cent economic interest in Airtel.
MTN shareholders would buy the remaining 11 per cent of Airtel.
In turn, Airtel will pay 86 rand ($10.32 or Rs 488) per share in cash and give half a share of Airtel for every MTN share in the form of GDR to be listed on the Johannesburg Stock Exchange.
The two companies have agreed to discuss the potential transaction exclusively with one another until July 31.
This is the second attempt by Airtel to merge with MTN. Exactly one year ago, talks between Airtel and MTN broke down as MTN wanted Airtel to become its subsidiary.
This time, Airtel has a policy advantage in its favour: new foreign direct investment rules permit up to 99 per cent foreign investment through the indirect route.
After last year’s talks failed, MTN began negotiations with Anil Ambani-owned Reliance Communications (RCom). But those negotiations also broke down, with Mukesh Ambani playing the spoiler, saying he had the first right to any shares that RCom sold.