Bharti Airtel, India’s largest telecom company, and South Africa’s MTN Group have resumed talks of a possible merger. A deal would create a telecom juggernaut with annual revenues of $20 billion and over 200 million subscribers across India, the Middle East and Africa. The user numbers alone would make the merged entity the third largest telecom player in the world after China Mobile and Vodafone, ahead of AT&T and many large European telcos.

Both the companies said that they were negotiating a cash and equity swap, considered to be a precursor to the merger. The deal would see Bharti acquire a 49% stake in MTN, while the South African company would buy 36% of Bharti Airtel. The two companies said they would merge completely in the future.
 
“We will see real power in the combination,”  Sunil Bharti Mittal, chairman and managing director of Bharti in New Delhi, said in a statement. Phutuma Nhleko, chief executive MTN, added, “The deal would create a highly visible commercial partnership between South Africa and India.”
 
Africa and India are the growth engines of the global telecom industry so both Bharti and MTN have seen their subscriber base swell to 100 million each.
 
Just a year ago, Bharti was a suitor to pick up a controlling stake in MTN.  Analysts say the deal floundered due to a regulatory hurdle in India: Bharti’s  foreign stake would have increased beyond the 74.5% limit stipulated by Indian law. Singapore Telecommunications and Vodafone are shareholders in Bharti.
 
Analysts also believe the companies failed to strike a deal earlier due to political miscalculations on MTN’s part. Investment bankers believed that MTN preferred to be seen as an acquirer rather than a seller. Subsequently, MTN also called off talks with India’s Reliance Communications.
 
Now both Bharti and MTN are ironing out a complicated deal. If it goes through MTN will fork out $2.9 billion in cash and issue new shares for a 25% stake in Bharti. The Indian telecom player will pay $10.32 and 0.5 newly issued shares for each MTN share it acquires.
 
Africa has been on Bharti’s radar for a while, as it considers the region to be the last underpenetrated market  in the global telecom terrain. Bharti has a small presence in the Seychelles, while its value added telecom services subsidiary Comviva Technologies operates electronic pre-paid services in Botswana, Cameroon, Egypt, Ivory Coast, Madagascar and Senegal.

While the deal on the table now would substantially increase that reach the markets are not impressed with Bharti’s plans. The Bombay Stock Exchange Index or the Sensex has consistently hammered the stocks of companies with big merger plans, as they do not see short term gains. The Bharti Airtel stock closed Monday 5.5% down  at $17.

----reported by Nandini Lakshman, a former BusinessWeek journalist based in India----