* 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 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. [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.
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For a related Graphic, click: here ($1=8.280 rand) ($1=46.83 rupees) (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)