Updates on Airtel & MTN Deal

Exactly a year ago, it was on 24^th May 2008 to be precise when the deal with MTN had fallen through. At that time if the deal had gone through, Bharti Airtel would have become the subsidiary of MTN, seriously compromising the interests of the minority shareholders of Bharti. Also from being a true Indian multinational telecom giant, symbolizing the pride of India, it would have become a South African company.

And now, on 25^th May 2009, exactly a year later, the clock seems to have turned completely in favour of Bharti. Instead of an out-and-out 100% takeover, Bharti is planning to acquire 49% stake in MTN and in turn, MTN and its shareholders would acquire approximately 36% economic interest in Bharti. The ultimate aim is to takeover MTN completely, but Bharti is planning to take this slow, as and when it is practical. The deal has been valued at $23 billion.

How is this deal different from last time?

The earlier deal fell off over issue of ‘exclusivity’. This time around Bharti and MTN have agreed to discuss the potential transaction exclusively with each other by July 31.

In the earlier deal, Bharti wanted to go for 100% takeover but this time around, it is going slow which makes practical sense.

How has the deal been worked out?

It’s a two set deal – MTN plans to buy about 25% in Bharti for about $2.9 billion in cash and also issue new MTN shares to Bharti, equal to about 25% of current share capital of MTN.

In the second step, Bharti plans to acquire about 36% of the currently issued share capital of MTN from MTN shareholders for Rand 86.00 ($10.3)/share in cash and 0.5 newly issued Bharti shares in the form of global depositary receipts for every MTN share acquired. Each GDR would be equivalent to one share in Bharti and would be listed on the Johannesburg Stock Exchange

Post this transaction, Bharti would have a 49% stake of the enlarged capital of MTN.

SingTel currently has about a 30% in Bharti Airtel and post this deal, it will continue to be a strategic partner and significant shareholder but it has no plans to fund this deal for Bharti.

Standard Chartered Bank and its affiliate First Africa SA (Pty) Ltd are the financial advisers and AZB & Partners and Bowman Gilfillan are the legal advisers to Bharti.

Is the Deal Good?

Bharti would have substantial participatory and governance rights in MTN enabling it to fully consolidate the accounts of MTN.

MTN’s economic interest in Bharti would be equity accounted and would have appropriate representation in the Bharti board.

With this deal, Bharti will continue to pursue further expansion in India and Asia while MTN would be the primary vehicle for both Bharti and MTN to pursue further expansion in Africa and the Middle East.

Only one third of the population is South Africa has been connected on the mobile, thus indicating the huge potential it has.

The MTN-Bharti combined revenues would be of over $20 billion and would give a combined customer base of over 200 million.

Currently a lot of Indian companies are grappling with the various prestigious takeovers they had done abroad. So for Bharti too, the initial year would bring in pains of integration.