Exactly one year ago, on May 25, 2008, negotiations for a deal between MTN and Bharti Airtel failed as the South African telecom giant insisted on Airtel becoming its subsidiary. When the talks began, Airtel had proposed that MTN would be its subsidiary.
This time round, the proposed equity structure on which the two companies have begun fresh negotiations takes care of all these issues. MTN would continue to be listed on the Johannesburg Stock Exchange, while Airtel’s Bombay Stock Exchange (BSE)/National Stock Exchange (NSE) listing would be unchanged. Neither will be taken over.
If this deal goes through, Airtel will pay 86 Rand ($10.32) per share in cash and half an Airtel share for every MTN share. Airtel’s share closed at Rs 810.30 at Bombay Stock Exchange. This is comparable to 165 rand ($19.80) Bharti is believed to have offered last year.
The most significant deal-easer that has happened in the past 12 months is the change in India’s foreign direct investment (FDI) rules. Earlier, there was a ceiling of 74 per cent FDI in telecom. With 40 per cent FDI in Airtel, a merger would have meant breaching the 74 per cent mark.
Today, the new FDI policy allows foreign equity of up to 99 per cent through the indirect route. As a result, a 36 per cent economic interest (the sum of direct and indirect equity holding in a company, according to company sources) in MTN’s favour can be easily accommodated.