Bharti Airtel, India's leading mobile operator, today ended takeover talks with South Africa's MTN Group after differences surfaced over control of the combined entity.
The groups, which announced on May 5 that they were in talks, had hoped to create the world's sixth-largest mobile operator with over 131 million subscribers in 25 countries.
The failure of the deal comes as a setback for the Bharti group's ambitions to become a major player in the global market. Vodafone has 250 million subscribers, China Mobile 392 million subscribers and American Movil (in Mexico) has 159 million subscribers.
The company has already conveyed its decision to pull out to the MTN board, after discussions that continued till late last night could not achieve a breakthrough.
In a press statement, Bharti said it has abandoned negotiations after MTN proposed a new structure, which would have seen it becoming a unit of the South Africa-based mobile phone operator.
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The MTN board, which had met on May 21, rejected Bharti's offer of merging MTN with Bharti Airtel (in which MTN shareholders would get a stake) and offered a new alternative.
An in-principle agreement had been reached between the two players on May 16 for a merger, which was initiated by the bankers from both sides and put up before the board.
Instead, the MTN board in a complete volte face suggested on Thursday that Bharti Airtel become a subsidiary of MTN and in return the Mittal family (which holds 45.31 per cent stake through Bharti Telecom) and Singtel (which holds 30.50 per cent equity stake directly and indirectly in Bharti Airtel) would have a controlling interest in the South African firm.
The proposal was not acceptable to Bharti Airtel.
The company said that the decision to pull out of the talks was prompted by its consideration that the new structure proposed by the MTN board would not have been in the interest of Bharti Airtel's minority shareholders and in its plans for growth as an Indian telecom multinational.
Sunil Mittal chairman of the group said: "Our interest is not about our shareholding but our aim of making Bharti Airtel a global multinational. We did not want control in such a convoluted manner."
However, Nozipho January-Bardill spokesperson of MTN group, only said: "In line with regulatory obligations, MTN will update shareholders as the market opens on Monday morning."
The Bharti press statement also added that the reference price at which MTN shares were to be transacted was agreed and frozen at the point of starting the discussion and Bharti would like to confirm that there was no further discussion on the share price of MTN, at any point.
It also said that internationally reputed bankers from the US and Europe have given confident letters of funding of over US $ 60 billion (the valuation of MTN was around US $ 45-50 billion).
Bankers, however, said that MTN had issues on a few areas : one, they were uncomfortable that Nhelko would become only deputy CEO with Mittal running the merged entity as the CEO Two, the offer of 160 Rand per share was also an area of contention.
Third, they were uncomfortable with the idea of losing control over the company, which is with Africans, and is seen as an example of their empowerment in the country.
Naresh Singh, principal research analyst, Gartner, said "The merger would have been good for both Bharti and MTN as the operations of both the companies were similar and the geographies they were operating in also held a lot of opportunities."
Bharti's departure may open the door for other potential bidders such as Emirates Telecommunications Corp. to buy Africa's biggest wireless carrier. Deutsche Telekom AG and Russia's OAO VimpelCom are considering whether to bid for MTN.