Caution sets in over proposed Bharti, MTN telecom pact (Lead)

May 27th, 2009 - 5:27 pm ICT by IANS  

By Fakir Hassen
Johannesburg, May 27 (IANS) After the initial enthusiasm over the $23-billion telecom deal proposed by India’s Bharti Airtel and South Africa’s MTN, analysts have turned cautious, even fearing if the transaction presented a fair value for shareholders.

Their fears were further fuelled after MTN shares fell 4.46 percent and those of Bharti closed lower for two consecutive days after the initial interest shown by the announcement Monday.

The two companies had said they were in discussions for a cross-ownership deal that could eventually create a mobile giant straddling Africa, India and the Middle East, with some $20 billion in revenues and more than 200 million subscribers.

According to Richard Hurst, head of Africa communications at the Industrial Development Corp, the transaction could lead to higher earnings for MTN shareholders only in the long term.

“But in the short term, it probably does not look as good as it should be,” Hurst told the Afrikaans daily Beeld.

Another analyst expressly called for MTN and Bharti to review the conditions of the transaction to obviate concerns over the insecurity stemming from the cross-shareholding agreement that has been proposed.

MTN will get a 25 percent stake in Bharti for $2.9 billion and through issuing new shares equal to 25 percent of its share capital.

Bharti proposes to buy 36 percent of the South African company by offering shareholders half a Bharti share and 86 rands (Rs.497) for each MTN share, a premium of about 35 percent on MTN’s closing price May 22 of 119 rands (Rs.687).

Analysts said the value of MTN shares could be diluted through issuing new shares, while expressing concern that if the Bharti scrip continues falling, the offer to MTN shareholders will also decrease.

But the initial views were different, especially since the two groups had held similar talks last year but failed to reach a consensus.

Jan Meintjes, portfolio manager at Gryphon Asset Management, had said discussions had deadlocked last year because neither group was happy about the other having a controlling interest.

“The world looks different today to a year ago. Perhaps the economic downswing has shrunken the egos,” Meintjies had told the Beeld.

Dobek Pater, analyst at Africa Analysis, felt that MTN could learn a lot from Bharti, which was competing with other operators in a low-tariff market.

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