Indian telecom major Bharti Airtel has informed the exchanges that it is in talks to pick up a stake in MTN, Africa's largest mobile group. This comes a year after Sunil Mittal of Bharti Airtel initiated talks with MTN, which ended after Anil Ambani led Reliance Communications wooed the latter. Neither Ambani could succeed in doing the deal.
Now Bharti may have swung a deal with MTN. In its communiqué to the exchanges, Bharti has said that it is "exploring a transaction" where it would acquire a 49% shareholding in MTN and, in turn, MTN and its shareholders would acquire an approximate 36% economic interest in Bharti, of which 25% would be held by MTN with the remainder held directly by MTN shareholders.
In a press statement, the Indian telecom major said that if the deal goes through, it would be achieved through a scheme of arrangement, which would include the following principal elements:
• MTN would acquire approximately a 25% post-transaction economic interest in Bharti for an effective consideration of approximately $2.9 billion in cash and newly issued shares of MTN equal to approximately 25% of the currently issued share capital of MTN.
• Bharti would acquire approximately 36% of the currently issued share capital of MTN from MTN shareholders for a consideration comprising ZAR 86.00 in cash and 0.5 newly issued Bharti shares in the form of Global Depository Receipts (GDRs) for every MTN share acquired which, in combination with MTN shares issued in part settlement of MTN’s acquisition of approximately a 25% post-transaction economic interest in Bharti, would take Bharti’s stake to 49% of the enlarged capital of MTN. Each GDR would be equivalent to one share in Bharti and would be listed on the securities exchange operated by JSE Limited, South Africa.
• Bharti would have substantial participatory and governance rights in MTN enabling it to fully consolidate the accounts of MTN
The potential transaction, when completed, would be expected to create value for Bharti shareholders, the release said. It further diversify Bharti income streams into the fast growing and relatively under-penetrated African and Middle Eastern markets.
This potential transaction would combine the strengths of two leading emerging market telecom operators to create a telecom group serving the large populations of Asia, Middle East and Africa. Along with Bharti’s partner, Singapore Telecommunications, and its Bridge Alliance the combined networks will cover a geography spanning Africa to Australasia.
This deal will involve a net outflow of $4b from Bharti. "Bharti paying ZAR 86 per share in cash and 0.5 Bharti GDR which would add up to ZAR 162 per MTN share or 36% premium to current share price. ZAR 162 would work out to CY09 EV/EBITDA of 7.34x compared to BHARTI EV/EBITDA of 9.45x. Also, 12% dilution of Bharti Airtel due to issue of shares to MTN shareholders.
"We believe this deal is positive for Bharti as it will extend Bharti's presence into 22 emerging telecom markets and as the deal values MTN at discount to Bharti on EV / EBITDA. We believe that Bharti with its reducing capex requirement and FCF positve exectation in FY10 is well positioned to acquire MTN", , said BNP Paribas India on its first blush to the deal.
Bharti said that it would be the primary vehicle for both Bharti and MTN to pursue further expansion in India and Asia while MTN would be the primary vehicle for both Bharti and MTN to pursue further expansion in Africa and the Middle East.
Sunil Bharti Mittal, Chairman and Managing Director of Bharti, said “We are delighted at the prospect of developing a partnership with MTN to create an emerging market telecom powerhouse. Both companies would stand to gain significant benefits from sharing each other’s best practices in addition to savings emanating from enhanced scale. We see real power in the combination and we will work hard to unleash it for all our shareholders."
Standard Chartered Bank and its affiliate First Africa SA (Pty) Ltd are the financial advisers and AZB & Partners and Bowman Gilfillan are the legal advisers to Bharti.
Bharti said the deal would be discussed exclusively till July.