Will Bharti connect this time around?

Telecom giant Bharti Airtel and South African major MTN are locked in talks for a possible cross-border transaction valued at over $23 billion. But will the talks translate into an actual deal, going by the experience last year? Analysts are divided on the matter.

Some are, however, quite optimistic. An industry source, who spoke to DNA Money on the condition of anonymity, argued that “in India, no company would make elaborate announcements without a reasonable certainty of the deal being done.”

Both Bharti and MTN issued detailed statements on Monday on the possible transaction. Contrast that with last year when Bharti remained evasive for long on the matter and subsequently issued a short statement saying that it was in “exploratory” talks with MTN for a possible deal. Nothing more than that. However, some others were cautious. Principal analyst at Gartner, Kamlesh Bhatia, said “as long as a deal is not done, you can’t be sure...”

Another observer pointed to the “complexity” of the potential transaction. Both sides would pay in cash as well as shares. Bharti would have 49% in MTN and the South African telco and its shareholders would acquire 36% economic interest in Bharti. While both the sides are looking for complete merger, one is not certain yet on who’ll be in charge of the new entity, a source said.

Another point raised by analysts is the value for shareholders of Bharti and MTN. They pointed out that there isn’t much clarity on how the shareholders of the two telcos would gain.  

However, Bharti said in a statement on Monday that the potential transaction, when completed, would be expected to create value for Bharti shareholders due to synergistic benefits and further diversification of Bharti income streams into the fast growing and relatively under-penetrated African and Middle Eastern markets.

Another uncertainty right now is about Bharti’s current foreign partner SingTel, which holds over 15% in Bharti Airtel and a total of 30% in the Bharti group. According to Bharti, “SingTel, a major existing shareholder of Bharti, will continue to be a strategic partner and significant shareholder after the implementation of the potential transaction.”
However, the company has not elaborated on SingTel’s change in stake post the MTN deal. When asked about it, analysts said that there’s lack of clarity on SingTel’s stake in Bharti after the deal.

Interestingly, at a recent press conference in New Delhi, SingTel chairman Chumpol NaLamlieng said that the company would certainly look at the opportunity of increasing stake in Bharti. And, Bharti chairman Sunil Mittal, also present there, had said, “I admit that there’s headroom to raise FDI, but the company does not require capital at this point. SingTel has a significant equity in the group, and currently there are no plans to divest.”

Standard Chartered Bank and its affiliate First Africa SA are the financial advisers and AZB & Partners and Bowman Gilfillan are the legal advisers to Bharti. Deutsche Bank is the banker to MTN.

Bharti on Monday announced that it had renewed its merger talks with MTN, which could result in a potential cross-shareholding deal worth over $23 billion. If there’s a deal, Bharti would acquire 49% shareholding in MTN. And, MTN and its shareholders would get around 36% economic interest in Bharti, of which 25% would be held by MTN and the remainder by its shareholders.

It would be India’s largest cross-border transaction so far, according to estimates. Tata Steel’s acquisition of UK’s Corus was worth around $13 billion. Bharti and MTN will talk exclusively with each other to work out a deal till July 31. Bharti and MTN have pointed out that discussions are at an early stage and a deal may or may not be signed ultimately.

MTN CEO Phuthuma Nhleko said in a statement, the deal would address the company’s strategic imperative of becoming one of the pre-eminent emerging market telcos with leading positions in three of the fastest growing wireless markets globally—India, Africa and the Middle-East, with no overlapping footprint.

The broader strategic aim of the deal “would be to achieve a full merger of MTN and Bharti as soon as it is practicable to create a leading emerging market telecom operator which today would have combined revenues of $20 billion and a combined customer base of over 200 million,” the two companies have said.

The combined market cap of Bharti and MTN, as of date, is around $60 billion. Bharti’s market cap is at $34 billion and MTN’s $28 billion. As for revenues, Bharti’s is $7.5 billion and MTN’s around $12 billion.