Reliance-MTN talks’ extension seen as sign of progress, investor confidence

July 11th, 2008 - 9:45 am ICT by IANS  

By Fakir Hassen
Johannesburg, 11 Jul (IANS) South African mobile giant MTN is still maintaining a firm silence on a possible deal with Reliance Communications, but analysts here said the fact that it had extended exclusivity talks with Reliance indicated that there was progress. Investor confidence in the continued talks were reflected in the slight rise of 0.21 percent in the MTN share price, while the stock exchange sector under which it is listed shed just over 3 percent

MTN made a terse statement via the Johannesburg Securities Exchange Wednesday after anxiously making stakeholders and the media wait for more than a day when its 45-day exclusivity talks agreement with Reliance Communications ended Tuesday.

“MTN has agreed to continue its negotiations with Reliance in relation to such potential business combination, and has extended the period of exclusivity until 21 July 2008,” the statement read.

“There is no certainty that these discussions will result in a transaction. Accordingly, shareholders are advised to continue to exercise caution when dealing in MTN securities,” the statement continued, but analysts here were confident that the extension indicated that there was progress in the talks that could see a $70b mobile company emerge in the Africa/Middle East/Asia region.

There were also concerns that the talks may have been delayed by an intervention from Mukesh Ambani of Reliance Industries, the older sibling of Anil Ambani, the majority shareholder in Reliance Communications. Mukesh had contacted MTN to indicate that he had first right of refusal for any sale of a stake in Reliance Communications in terms of an agreement when their father’s company was split into two following a rift between the brothers.

Although MTN has still refused to comment on the Ambani feud, sources close to the company said MTN believed that it was a matter for the brothers to resolve themselves.

Confidence was high that the talks were going well and that a conclusion was in sight: “My point is, why bother to extend the discussion if it’s not going to materialise?” portfolio manager Sisa Rafuza of Metropolitan Asset Managers here told the daily Business Report Thursday.

Rafuza said the likelihood of the deal happening in some shape or form was relatively high.

Lindsey McDonald, an analyst at research company Frost and Sullivan, told Business Report that the complicated nature of the deal was certainly a factor in the extension as both companies tried to secure the best possible outcome. McDonald said the potential value of the deal was “too great to try to conclude negotiations quickly,” adding that it would be unfortunate if the deal did not go ahead.

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