With less than two weeks left to conclude the deal, the structure of the proposed equity swap between India’s largest telecom service provider Bharti Airtel and South Africa based MTN — ultimately leading to a merger of two entities — has not yet been finalised.
The bone of contention: valuation of the deal, according to a source familiar with the development who wished to be identified.
The deadline for exclusivity of negotiations is September 30.
The deal has to be innovatively structure in order to get government’s support, the source said. The South African government will not support the deal if the final entity looks like an Indian company.
This could turn out to be a big challenge. Initially, a joint press release of Bharti and MTN said that Bharti would acquire about 49 per cent shareholding in MTN. The deal has to be structured in such a manner that it looks like a South African company.
“MTN does not comment on speculation,” an MTN spokesperson told Hindustan Times. “At this stage, MTN has nothing further to add to the announcement issued to the market on 20 August 2009, which stated that both parties had agreed to extend the exclusivity period until up to 30 September 2009. Discussions are still in progress.”
“Beyond what we have already communicated in our statements, we have no further comments to offer,” said a Bharti spokesperson.
“This deal is good for both the companies,” said Subodh Agrawal, chairman of Euromax Capital, a London-based investment bank with special focus on India and Africa.
“It needs to be structured in such a manner that the political and public sentiments in South Africa are satisfied.” The finance ministers of India and South Africa recently discussed dual listing of the proposed merged entity in South Africa and India such that both companies retain their national characters.
However, Indian rules do not permit dual listing as it requires a change in Foreign Exchange Management Act and the Companies Act. It also involves full capital account convertibility.