Reliance takes over wooing elusive target MTN

Tuesday, May 27, 2008

For India’s Reliance Communications, the breakdown of talks between its arch-rival Bharti Airtel and MTN must be a relief.

A combination of Bharti, India’s number one mobile operator by subscribers, and South Africa’s MTN would have created a formidable competitor with 130m subscribers across 22 fast-growing markets in south Asia, Africa and the Middle East.

Now, as Reliance pursues its own deal with the South African operator, Bharti’s experiences may hold some lessons for India’s second- largest mobile operator – and for any other foreign group eyeing MTN.

Bharti’s initial bargaining position was stronger than that of Reliance. Controlled by Sunil Bharti Mittal, the billionaire entrepreneur, Bharti is almost the same size as MTN with 62m subscribers and a market capitalisation of about $38bn compared with 68m users and a value of up to $44bn for MTN.

Reliance, by contrast, has about 42m subscribers and a market value of $28bn. It first approached MTN last year but later withdrew for undisclosed reasons.

For Bharti, a tie-up with MTN would have catapulted it into the ranks of the world’s largest telecommunications players.

Mr Mittal is used to meteoric rises. In two decades, he expanded Bharti from a small phone manufacturing start-up into a group with international aspirations.

Mr Mittal concluded a term sheet for a deal with MTN on May 16 that was presented to the South African company’s board last Wednesday.

People familiar with the deal said Bharti’s preferred structure was a cash-and-shares takeover of MTN that would have left the major shareholders of both with roughly equal holdings in the enlarged entity.

But, late last week, MTN suddenly changed stance, introducing an alternative structure that would have made Bharti a subsidiary of the South African company.

Under the new proposal, Bharti’s controlling shareholders, Mr Mittal’s family and Singapore Telecommunications, would have exchanged their majority holdings in Bharti for a controlling stake in MTN.

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Source: Financial Times (link opens in a new window)