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Sunil Bharti Mittal’s Bharti Airtel – MTN merger: The big picture

By Amarendra Bhushan for CEOWORLD Magazine Updated:May 26, 2009

Indian mobile company Bharti Airtel, which has restarted merger talks said, it had renewed merger talks with South Africa’s MTN to create a telecom powerhouse that would have more than 200 million subscribers and stretch from Asia to Africa.

A Bharti spokesman valued the cost of the potential deal “in excess of $23-billion (U.S.).” Under the proposed terms, Bharti would acquire a 49-per-cent stake in MTN.

In turn, MTN and its shareholders would get a 36-per-cent stake in Bharti – of which 25 per cent would be held by MTN with the remainder by MTN shareholders.

Bharti’s market value stands at about $33-billion, while MTN’s shareholder base is worth $28-billion.

MTN would acquire approximately 25% of Bharti for a consideration of $2.9 billion in cash and a fresh issue of ~25% MTN shares.

MTN is the dominant operator in several countries across Africa while Bharti is largely and Indian operator, with nearly 80 per cent of its revenues coming from its mobile telephony business.

Brokerages estimate net cash outflow of around $4 billion from Bharti in the proposed deal, under which Bharti would pay cash and shares for 49 percent of the South African firm, and MTN pays cash and stock for a 36 percent stake in the Indian firm.

The talks could lead to a merger creating one of the world’s biggest cell phone groups by subscribers through the combination of India’s biggest operator and MTN, which runs networks across 21 markets in Africa and the Middle East.

Whereas, Bharti Airtel’s institutional investors have given a thumbs-up to the company’s plans to merge with South African telecom major MTN, as
they feel that access to emerging markets such as Africa and West Asia is crucial for the long-term growth prospects of the company.

LIC, one of the largest institutional investors in Bharti Airtel, too, feels that the merger would be good for both companies and its shareholders.

Just over a third of India’s 1.1 billion population have a cell phone, while MTN operates in virtually untapped markets such as Afghanistan and Sudan, as well as in Africa, where some analysts believe users could almost double to 700 million by 2013.

he $23-billion cash-and-share deal between Bharti Airtel and South Africa’s MTN group will need the approval of the foreign investment promotion board (FIPB), in the absence of a policy on share swaps.

The current FDI policy allows cashless issue of shares through instruments such as warrants after FIPB approval. While the policy does not explicitly mention that foreign firms need FIPB approval if the deal involves share swap, the Foreign Exchange Management Act says such deals need RBI approval.

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