Emerging markets made to wait longer as MTN and Bharti thrash out deal

India’s largest mobile operator Bharti Airtel (Bharti) and Africa’s largest mobile operator by subscriber numbers, MTN Group (MTN) have extended for the second time exclusive merger talks, agreeing on a new deadline of September 30.

Merger talks between the two entities resumed in May and the companies had earlier extended the exclusive talks till August 31 from July 31. A year earlier previous talks broke down between MTN and Bharti over who would control a merged entity.

MTN Group CEO Phuthuma Nhleko is a firm supporter of the deal with Bharti, believing it would offer both companies strong exposure to emerging markets

As per the latest deal on the table, Bharti could acquire 49 per cent of MTN while the South African firm and its shareholders would pick up a combined 36 per cent stake in the Indian counterpart. The deal involves both paper and cash, and under the proposed arrangement, which is valued at around US$23 billion, MTN would pay US$2.9 billion and shares equivalent to 25 per cent of its share capital to Bharti in return for a 36 per cent stake in the Indian firm.

Bharti in turn would acquire a 36 per cent stake in MTN, controlled by the Mikati family and a trust representing senior management and employees. The Mikati family gained a 10 per cent stake in MTN through the acquisition of their telecom company Investcom by MTN for US$5.5 billion in 2006. Bharti’s offer represents R86 (US$10.44) and 0.5 Bharti share for each MTN share acquired through a global depository receipt (GDR) listing on the Johannesburg Stock Exchange. Together with the earlier 25 per cent crossholding in MTN, Bharti Airtel would end up owning 49 per cent of MTN’s enlarged capital.

While MTN would be the primary vehicle for both Bharti and MTN to pursue further expansion across Africa and the Middle East, Bharti would be the primary vehicle for both companies to pursue further expansion in India and Asia.

Bharti expects the tie-up to give it substantial participatory and governance rights in MTN, enabling it to fully consolidate the accounts of MTN while MTN would also have representation on the Bharti board. However the structure and terms of the potential transaction may be adjusted.