Bharti/MTN: Politics have scuppered the creation of a new emerging-market telecom giant. South Africa’s insistence that MTN retain its national identity has proved an immoveable obstacle to a proposed $22 billion share-swap with Indian rival Bharti Airtel. A long-mooted tie-up, with intense negotiations since May, has been terminated. Yet with no guarantee the deal would ever lead to a full-blown combination with all the usual benefits — shutting down the idea seems wise.
This merger was always set to be fiendishly complex. Under the terms first outlined to investors five months ago, Bharti would have taken a 49 per cent stake in MTN and the South African firm and its shareholders a 36 per cent stake in Bharti. The detailed proposal showed the two sides had spent months privately mulling the structure after initial talks collapsed last year.
Although Bharti would not have gained a majority stake in MTN under the proposed swap, it still would have wound up in the driver’s seat. That’s what worried South Africa’s National Treasury, which is understood to have wanted to buffer the situation with a company dual-listed in Johannesburg and Mumbai rather than merely a secondary listing, as proposed. But with the rupee only partially convertible, that would have required a substantial change to India’s stock market rules.
Other lesser obstacles also made it easier for both sides to walk away. There was uncertainty over whether MTN’s proposed purchase of its stake in Bharti through global depositary receipts would have required it to buy still more following a recent regulatory change in India. The strengthening of the South African rand in recent weeks against the US dollar also further undermined some of the economic merits of the transaction.
Bharti and MTN are better off ending talks now, especially if they fear future regulatory hurdles would prevent them from delivering the juicy synergies shareholders would expect from a full merger. Both sets of investors would rightly be furious if all they were left with was a blocking stake in the other. But after MTN’s years of failed efforts to strike a politically acceptable deal with various suitors, it’s hard not to think this outcome was all too predictable.
