* Combined firm would have more than 200 mln subscribers
* Combined market capitalisations at over $60 bln
* Initial stake-swapping deal value over $23 bln
* Aim is to achieve full merger as soon as possible
* World's biggest non-pharma M&A transaction this year
(Adds background, union comment, edits)
By Devidutta Tripathy and Gugulakhe Lourie
NEW DELHI/JOHANNESBURG, May 25 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
"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
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. [ID:nBOM341527] [ID:nBOM261203].
MTN has reportedly been courted by other suitors, including
China Mobile, Telecom Italia (TLIT.MI) and Etisalat ETEL.AD.
A full merger would need government and regulatory approval.
South Africa's powerful trade union COSATU, which has clout with
new President Jacob Zuma and almost derailed Vodafone's takeover
of MTN rival Vodacom this month, said there were "worrying
aspects" of the deal and it was looking at it closely.
Banking sources said Bharti may raise $3-4 billion in debt.
MTN, which had 28.7 billion rand in cash at the end of 2008,
declined to comment on how it would fund the transaction.
Sanjay Chawla, a telecoms analyst at Anand Rathi Securities,
said that, based on Friday's closing share price, the deal gave
Bharti an enterprise value of 11 times EBITDA, while MTN was
valued at 5.5 times, making it a good deal for Bharti.
Some Indian analysts said the firms would not have embarked
on new talks unless control issues had been settled.
"One wouldn't go back a second time unless one is sure,"
said Rajesh Jain, chief executive at Mumbai's Pranav Securities.
Under the initial proposed deal MTN would take a 25 percent
interest in Bharti for $2.9 billion plus new MTN shares equal to
about 25 percent of its existing shares. MTN shareholders would
take another 11 percent of Bharti.
Bharti would buy about 36 percent of existing MTN shares at
86 rand each, plus half a newly issued Bharti global depositary
receipt, to be listed in Johannesburg, for each MTN share.
At Friday's closing share prices this offer was worth
161.95, a 36 percent premium over MTN's closing price on Friday.
This offer and the shares MTN issues for its stake in Bharti
would take the Indian firm's holding to 49 percent of MTN's
enlarged capital. Bharti would fully consolidate MTN's accounts
and MTN would have representation on the Bharti board.
Southeast Asia's top phone firm, SingTel (STEL.SI), which
owns about 31 percent of Bharti, would remain a big shareholder.
Standard Chartered (STAN.L) (2888.HK) is advising Bharti
while Bank of America Merrill Lynch (BAC.N) and Deutsche Bank
(DBKGn.DE) are advising MTN.
For further stories, double click on [ID:nSP477731]
For a related Graphic, click:
(Additional reporting by C.J. Kuncheria; Narayanan Somasundaram
and Reuters Staff in Mumbai, Kevin Lim in Singapore; Writing by
Rebecca Harrison; Editing by Simon Jessop)