Efforts to forge a $24 billion pact between the largest mobile operators in India and sub-Saharan Africa collapsed last night after the South African Government refused to endorse the deal, after four months of negotiations.
Bharti put the blame on South Africa, saying in a statement that the government "has expressed its inability to accept" the structure of the merger.
"In view of this, both companies have taken the decision to disengage from discussion," it continued. "We hope the South African government will review its position in the future and allow both companies an opportunity to re-engage."
The two companies are both leaders in their respective markets, and Bharti said it would continue to "explore international expansion opportunities."
Bharti officials declined to provide further details Wednesday night.
Bharti Airtel of India and MTN Group of South Africa had been locked in exclusive negotiations since May, when they revived merger talks that had already failed once, a year earlier. The talks, aimed at creating a new industry behemoth with 200 million subscribers across fast-growing emerging markets, were originally set to end on July 31, but had been extended twice.
The tie-up would have created a mobile giant with $20 billion in annual revenues, drawn from India, Africa and the Middle East. It would also have been the world's biggest cross-border deal this year, creating the world’s third-largest mobile group by subscriber numbers.
The parties failed, however, to overcome fears in South Africa that MTN risked losing its national identity – even after the Indian Prime Minister, Manmohan Singh, met the South African President, Jacob Zuma, on the sidelines of the G20 meeting in Pittsburgh last week in a bid to assuage those concerns.
Bharti executives did not rule out the deal being revived in the future. However, bankers said the intransigence of Mr Zuma's administration could now dissuade other possible suitors, such as China Mobile and Reliance Mobile of India, from making a move for MTN.
Bharti, controlled by the Indian billionaire Sunil Bharti Mittal, said in a terse statement that the deal “was a vision based on solid fundamentals” which would have cemented relations between India and South Africa.
It added: “This structure needed an approval from the government of South Africa, which has expressed its inability to accept it in the current form. In view of this, both companies have taken the decision to disengage from discussion.”
However, the tie-up had also faced regulatory concerns in India over a proposed dual listing, a proposal tabled by South African officials that would not have been allowed under current Indian rules.
Under the initial terms outlined in May, MTN and its shareholders would have taken a 36 per cent stake in Bharti while the Indian company would have held 49 per cent of MTN. The transaction would have been worth about $24 billion.
It is thought Bharti had increased the cash component of its offer for that 49 per cent stake to $10 billion from $7.6 billion, and had proposed to pay $4 billion in stock, 7 per cent more than it first offered.
Analysts had suspected that those sweeteners were not going to be enough. Despite New Delhi’s positive stance, India last week amended its takeover rules, requiring a company buying 15 per cent of an Indian firm through American depositary receipts or Global depositary receipts, with voting rights, to make an offer for a further 20 per cent.
South Africa's National Treasury said in a Wednesday statement that MTN executives met with Minister of Finance Pravin Gordhan Wednesday morning and told him the two companies called off talks because "they were not able to conclude all outstanding matters to enable the transaction to proceed."
The statement added that the deal involved foreign exchange and other regulatory issues that required special approval from the minister of finance.
"South Africa had demands of national pride and wanted a dual listing. That could have been one of the reasons for scuppering the deal," Angel Broking analyst Harit Shah said in an interview Wednesday night. "On the Indian side, it was clear a dual listing was a non-starter."
Such dual listings are not legally permissible in India because of currency controls.
Shah said that in the short term he expects Bharti's stock price, which has fallen because of uncertainties over the merger, to bounce back. But long-term, it's a lost opportunity for growth for India's largest mobile phone company, he said.
"India is getting saturated. Growth is starting to slow down. You're seeing increasing competition in the market," Shah said. "From the point of view of future growth, they'll need to look at some acquisition or another."
When talks began in May, Bharti said it aimed to acquire a 49 per cent stake in MTN, while MTN and its shareholders would have taken a 36 per cent stake in Bharti through a complex cash and equity deal.
It was not the first time the two companies had come to the table only to see talks break down. Negotiations between Bharti and MTN over a possible merger first foundered in May 2008.
MTN then opened talks with India's Reliance Communications, but those talks collapsed two months later.
Source: Timesonline/Canadian Businessonline
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