India's Bharti, South Africa's MTN seek $61 billion merger

By Devidutta Tripathy and Gugulakhe Lourie

NEW DELHI/JOHANNESBURG (Reuters) - India's Bharti Airtel and South Africa's MTN have revived merger talks to create a $61 billion telecoms giant spanning Africa, Asia and the Middle East a year after their previous attempt foundered over who would control the combined entity.

Bharti (BRTI.BO) and MTN (MTNJ.J) are mulling an initial deal worth over $23 billion, under which Bharti would pay cash and shares to end up with 49 percent of MTN, after MTN pays cash and stock for an effective 36 percent stake in the Indian firm.

They hope that would lead to a merger creating the world's third biggest cell phone group by subscribers through the combination of India's biggest operator and MTN, which runs networks across 21 markets in Africa and the Middle East.

Trading equity stakes would give both firms exposure to new markets ripe for growth, while a full merger would yield cost savings, allow for technology sharing, and provide the financial muscle for more expansion, analysts say.

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.

"There are some tangible benefits for both: bigger market exposure, access to innovative products and better buying power," said Khulekani Dlamini, a fund manager at Cape Town's Afena Capital.

Bharti's shares closed 5.4 percent lower at 811.40 rupees, valuing the group at $34.49 billion, while shares in MTN raced 8.82 percent higher to 129.50 rand by 1425 GMT, valuing the company at about $29.2 billion, according to Reuters data.

With 200 million users, a combined entity would be the third biggest based on subscribers, behind China Mobile (0941.HK) and Vodafone (VOD.L), although annual sales of $20 billion would be dwarfed by both, with China Mobile at $60 billion and Vodafone at $65 billion.

If the stake-swapping deal goes ahead it would be the world's biggest non-pharmaceutical transaction so far this year, according to Thomson Reuters data.

LONG ROAD AHEAD?

However, some analysts voiced doubt as to whether a deal would be sealed after similar talks collapsed last year. Bharti and MTN said discussions were at an early stage and the firms had set an exclusivity deadline of July 31.

"There is a long road to travel for the deal to actually go through," said Jan Meintjes, a telecoms analyst at Gryphon Asset Management. "I think there are serious issues in terms of the spheres of influence of the two companies and their management."

South Africa's first black-owned firm when it launched in 1994, MTN pursued an acquisition spree that culminated in the 2006 purchase of Investcom, expanding its Middle East footprint and making Lebanon's Mikati family one of its largest investors.

It has been eyeing another big deal for some time and held failed talks last year with both Bharti and rival Reliance Communications (RLCM.BO). The Bharti talks collapsed when the South African firm proposed a new structure that would have seen Bharti become an MTN unit.

MTN has reportedly been courted by other suitors, including China Mobile, Telecom Italia (TLIT.MI) and Etisalat (ETEL.AD).