MTN, Bharti woo each other again

ISSUED BY ITWEB
Author: PAUL VECCHIATTO

Marriage is on the cards for MTN and Bharti Airtel again, in a deal that could be worth R191 billion.

Mobile network groups MTN and India's Bharti Airtel are in discussions around a share scheme, which could potentially turn them into the third-largest cellular telecommunications entity in the world.
The deal is worth a potential $23 billion (R191 billion), with Bharti Airtel's market capitalisation currently at around $34 billion (R282.2 billion) and MTN at $23 billion (R190.9 billion).
Combined, the two groups will have a subscriber base of slightly less than 200 million. MTN has 100 million subscribers in Africa, including SA, Nigeria and Uganda and other countries, plus it has subscribers in Afghanistan and Iran.
Bharti has nearly 93 million subscribers, with almost all of them in India and Sri Lanka.
Should the deal be consummated, MTN and Bharti would be catapulted from numbers 10 and 11, respectively, in terms of subscriber numbers. This would place them just ahead of the Telephonica/Movistar/O2 group, which currently has 195 million subscribers, but behind UK group Vodafone, with 264 million subscribers. China Mobile remains at the top, with 471 million subscribers.
Last year, the two attempted a merger, but it was called off when the Bharti family, the major shareholder in Bharti Airtel, was apparently unhappy about the deal's structure. However, MTN and Bharti continued to work together on other deals, which included the signing of a value-added service agreement, in November last year.
Marriage proposal
In today's SENS announcement to shareholders, MTN says it and Bharti are exploring a potential transaction whereby MTN and its shareholders would acquire through a scheme of arrangement a 36% stake in Bharti, of which 25% would be held by the group and the remainder by shareholders. In turn, Bharti would acquire a 49% shareholding in MTN.
The two groups have given themselves until 31 July to discuss the transaction and make a final decision on whether to go ahead with it.
According to MTN's announcement, the rationale behind the deal is the synergies between Bharti's Indian markets and the markets MTN has been developing in Africa and the Middle East. It also says the transaction marks a significant development in South-South cooperation between India and SA.
MTN CEO Phuthuma Nhleko says: "The rationale for this potential transaction between MTN and Bharti is highly compelling. It addresses our strategic imperative of becoming one of the pre-eminent emerging market telecommunications companies, with leading positions in three of the fastest-growing wireless markets globally India, Africa and the Middle East, with no overlapping footprint."
Detail needed

Phuthuma Nhleko
However, analysts say that, while the news is welcome, they are somewhat puzzled at what the longer-term value of the deal is, as both groups are leaders in their respective markets. They also want to know more about the deal, as they find the announcement lacking detail.
“They have not detailed exactly what these synergies are,” says Irnest Kaplan, of Kaplan Equity Analysts. “Bharti is very focused on the Indian market, while MTN has a far more varied market structure.”
Rob Forsythe, an analyst at Investec Asset Management, says the deal could be beneficial in the longer term, as both groups have markets that have high subscriber growth potential.
Forsythe says that, while the MTN-Bharti announcement comes literally within a week of rival Vodacom's listing on the JSE, it means the South African operations will not be as significant for MTN as Vodacom.
“What MTN is doing is lessening their regulatory risk in SA, while Vodacom still has 90% of its business in this country,” he says.


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