Proposed Merger of India’s Bharti AirTel and South Africa’s MTN Collapses

Once again, politics torpedoed two emerging markets’ telecom behemoths from walking down the aisle. The proposed $24 billion deal between India’s largest mobile player Bharti Airtel and South Africa’s flagship MTN was called off on September 30.
 
Four months of intensive talks and two extended deadlines later, the deal — which would have created a low-cost telecom juggernaut with annual revenues of $20 billion and over 200 million subscribers across India, the Middle East and Africa – was unpalatable to the respective companies’ governments.
 
A Bharti statement said that the companies had decided to “disengage from the discussions” due to the South African government’s “inability to accept the deal in the current form.” The Indian government, on the other hand, would have had to amend some of its corporate rules to provide dual listing for the joint venture company. Analysts say that the amendement would have been a long drawn affair, while the deal deadline was September 30, 2009.
 
This is the second time that the two players nixed talks to become the third largest telecom player in the world behind China Mobile and Vodafone.  The deal would have seen Bharti acquire a 49% stake in MTN, with the South African company buying 36% of its Indian partner through Global Depository Receipts or overseas Indian shares to be listed on the Johannesburg stock exchange.
 
MTN listed in its home country wanted to list in India as well. South Africa officials and regulators were in New Delhi a week ago, but couldn’t arrive at a decision.  But a precondition for dual listing in India is full convertibility of the local currency. New Delhi would have had to alter the Companies Amendments Bill to ensure such listings, says a telecom consultant.
 
South Africa was also concerned about retaining MTN’s homegrown image. “It would be sad if we saw this entity move into the hands and management of foreign nationals,” said Siphiwe Nyanda, the country’s communications minister on Wednesday. Analysts allege that the two countries are culturally mismatched. Many Indians had migrated to South Africa as both were under British colonial rule. And Indians hadn’t been classified in the apartheid regime. With history backing them, MTN, say analysts, preferred to be seen as an acquirer rather than a seller.
 
In a way, wooing competitors hasn’t been easy for South Africa’s corporate icon. The publicly traded mobile and fixed line MTN has a track record of being a runaway bride: In the last two years, its suitors included China Mobile, Vodafone and Reliance Communications. Just 16 months ago, Bharti was to pick up a controlling stake in MTN. Talks floundered due to regulatory hurdles in India.
 
There is no doubt that Bharti saw MTN as a big opportunity. It believed that Africa, like India, was one of the last underpenetrated telecom territories in the world. Bharti has a presence in Seychelles while a subsidiary provides mobile services in Botswana, Cameroon, Egypt, Ivory Coast, Madagascar and Senegal. Still, Bharti is optimistic and hopes  “the South African government will review its position in the future and allow both companies an opportunity to re-engage,” said the company release.
 
The Indian market, however, is jubilant with the aborted transaction: It has consistently hammered company stocks with big merger plans as there were no short term gains. But Bharti Airtel’s stock traded more than 4% a day after the announcement, as brokers claim the company can now retain cash to build its 3G network. MTN shares which plunged 3.5% on Johannesburg Exchange after the announcement and trading had to be suspended, were up 2.1% in early trading on Thursday.

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