Two large telecom companies, a $23 billion (Rs 110,000 crore) two-way deal, more than 200 million combined subscribers and one deal that has been hanging fire since May 25. Now, with the governments of South Africa and India entering the fray, here’s a primer on where the Bharti-MTN deal stands and the way forward.
With deadline of the exclusivity of negotiations for the proposed Bharti-MTN ending on Wednesday, what lies ahead?
The most likely scenario is that the two companies may extend the deadline and continue with the negotiations. This is because of changes in the takeover code last week that treat investors of global depository receipts (GDR) and American depository receipts (ADR) at par with Indian investors. This means if MTN is given a voting right in Bharti and controls more than 15 per cent stake through GDR/ADR, it has to make a mandatory 20 per cent open offer to Bharti shareholders.
The second possibility is that the two companies may announce that the deal is signed subject to approvals by the two governments.
The third possibility is that the two companies may call off the deal.
What are hurdles in the deal?
The South African authorities and politicians want that MTN should remain as a South African company, even after the proposed merger deal with Bharti. This will get in the way of the deal — a future merger of the two companies, while maintaining MTN as a South African company, is not possible.
The other hurdle is Indian rules not permitting a dual listing — when a single company is listed in two countries and the shares are traded in any currency — as the Indian rupee is not fully convertible. However, this was all known before the
talks began and both companies were also aware of the South African government’s position regarding MTN.
What was the original deal structure between Bharti and MTN?
Bharti Airtel would acquire 36 per cent ‘economic interest’ in MTN for $6.9 billion (Rs 33,000 crore). Besides, MTN will also offer fresh shares to Bharti taking the latter’s shareholding in MTN to 49 per cent. In return, MTN will acquire 25 per cent ‘economic interest’ in Bharti Airtel for $2.9 billion (Rs 14,000 crore) and MTN shareholders will acquire another 11 per cent through GDR.
What is government’s position on the deal in view of dual listing?
Existing Indian laws do not permit dual listing. Finance secretary Ashok Chawla today said that there was no formal proposal (from Bharti and MTN) before any public authority in India as of today. “Our officials had some discussion with them,” he told reporters. “They have explained our legal position and asked them to see what is it that they need.”