Bharti redials for strategic ties with South Africa’s MTN (Roundup)

May 25th, 2009 - 6:35 pm ICT by IANS  

KPMG New Delhi, May 25 (IANS) India’s Bharti Airtel and South African telecom giant MTN have resumed negotiations that had collapsed last year to buy stakes in each other’s company in a deal worth some $25 billion.
The two groups are discussing options under which Bharti will acquire 49-percent stake in MTN and the South African company, along with its shareholders, will buy 36-percent equity in the Indian company, the two firms announced Monday.

“Bharti and MTN have agreed to discuss the potential transaction exclusively with one another until July 31, 2009,” an official statement issued by them said.

Jaideep Ghosh, communications director at global consultancy KPMG, said potential transaction between the two would create a leading telecom service provider group, aligning Bharti’s Indian business with MTN’s African and Middle Eastern operations.

“The deal gains significance as it will give both the operators access to the markets they did not venture into before and they are also set to gain from large subscriber numbers that the companies would get in return,” Ghosh told IANS.

Agreed Mahesh Uppal, director of Delhi-based consultancy Com First and telecom analyst.

“It is about markets that neither had accessed before: MTN in Asia and Bharti in South Africa, at the same time promoting South-South co-operation.”

Based on Friday’s market closing, Bharti is worth some $25 billion, while MTN’s valuation is close to $35 billion. The percentage of shares proposed to be acquired by the two companies would make the deal worth nearly $25 billion.

Both Bharti and MTN have over 100 million subscribers and the deal will make the combined entity among the top five telecom service companies in the world, with annual revenues of $20 billion.

The talks call for MTN and its shareholders to buy 36 percent interest in Bharti for which the South African company will pay $2.9 billion. Bharti intends to buy 49 percent in the enlarged capital of MTN.

“Since the deal is based on a cross-holding pattern, it is much more viable for both the entities,” KPMG’s Ghosh said.

Singapore Telecom, a major existing shareholder of Bharti, will continue to be a strategic partner and hold significant shareholding after the implementation of the potential transaction, the two companies announced.

Bharti had ended its talks with MTN last year, rejecting the proposal that would have made the Indian firm a subsidiary of MTN. Following that, the South African group started negotiations with the Reliance Anil Dhirubhai Ambani Group, which also failed.

“We are delighted at the prospect of developing a partnership with MTN to create an emerging market telecom powerhouse,” said Sunil Bharti Mittal, chairman and managing director of the Bharti group.

“Both companies stand to gain significant benefits by sharing each other’s best practices in addition to the savings emanating from enhanced scale. We see real power in the combination and will work hard to unleash it for our shareholders,” Mittal said.

“This opportunity also represents a first of its kind in developing an Indian-African initiative that would serve as a shining example of South-South cooperation.”

MTN chief executive Phuthuma Nhleko said the rationale for synergy between the two groups was highly compelling and that it would be a highly-visible partnership between an Indian group and a South African firm.

“It addresses our strategic imperative of becoming one of the pre-eminent emerging market telecom companies with leading positions in three of the fastest growing wireless markets globally - India, Africa and the Middle East - with no overlapping footprint.”

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