Bharti Airtel has finally thrown in the towel on merger talks with MTN, and shareholders seem pleased that the uncertainty has ended.
Post noon, Bharti’s stock was up 5.1% on the Bombay Stock Exchange (Rs 440.15), while the benchmark Sensex was up 0.1%.
Earlier in the day, Bharti shares rose 12%, a four-month high. The stock gained 0.1% in September, while the Sensex rose 9.5%, as shareholders steered clear for lack of clarity on the MTN deal.
Late Wednesday, the New Delhi headquartered telecom operator issued a statement saying: “Bharti and MTN have decided to disengage from their discussions when the exclusivity period ends on September 30, 2009.” The final deal structure needed approval from the South African government, which “has expressed its inability to accept it in the current form,” said the statement.
The proposed €15.7 billion deal would have seen Bharti taking a 49% stake in MTN through cash and shares, and MTN and its shareholders taking a 36% stake in India’s largest mobile operator.
South Africa’s government had reportedly asked India to allow the merged company to have dual listing, to retain the national character of MTN. But that structure is not viable under Indian laws.
Analysts said MTN and Bharti’s stocks would see near-term gains now that the companies were free from the complex deal negotiations. Bharti had called off talks with MTN last year and resumed them in May this year, after which it twice extended a deadline on exclusive discussions. Bharti’s shares fell 6% between May 25, when it made an offer for MTN and Sept 30, and MTN fell 6.4%.
Both MTN and Bharti, which have in excess of 100 million subscribers each and operate in high growth regions, are likely to be in the market again soon looking for suitors, say analysts.
“Despite this deal falling through, we do not expect Bharti to abandon its ambitions for expansion in international markets and diversification out of the increasingly competitive Indian telecom market,” JP Morgan analysts said in a research note late Wednesday. “Given its strong balance sheet and proven execution capabilities, we would not rule out the possibility of Bharti bidding for other international telecom assets, although none are likely to be as large as MTN,” the note said.
As for MTN, potential partners include Reliance Communications, which called off talks with MTN last year following a family feud in Reliance; China Mobile, which could seek to offset cost pressures in its home market by looking at Africa. China is now the region’s top trading partner. MTN could also seek a partnership with Kuwaiti firm Zain. Last month chief executive Phuthuma Nhleko told reporters MTN could consider buying all or parts of Zain’s African operations if the Bharti deal fell through. But he reportedly said that was an option only if there were no regulatory problems.