Sunil Bharti Mittal, the poster boy of India’s telecom, has missed the African Safari and, with it, the opportunity to create an enterprise of great magnitude. The Bharti Group, which has been in talks with MTN since May, recently sweetened the deal, pegged at $24 billion, but finally lost the race to South Africa’s need to protect its own corporate jewel from losing its national character. So, would dual-listing have paved the way and led to subsequent integration of these two mammoth enterprises? Would the marriage between these two companies (national character and all) been a happy one? We might never know the exact answers to those.

But, deal-makers and some legal experts, that VCCircle spoke to, are of the opinion that this development will not have much of an impact on India Inc’s cross-border acquisition appetite or intent. While sentiments may be down today, deals are done based on the strength of business and economic sense. The failure to conclude this deal, however, underscores the significance of regulatory clearances when conventional deal-breakers have been valuations and lack of chemistry between enterprises. Here’s what members of India’s deal-making community have to say about the lost opportunity:-

Vivek Gupta, Partner, M&A Practise at BMR Advisors

This was the first opportunity to create a true trans-national developing countries' telecom giant. It seems very unfortunate for a deal that seemed commercially done to come unstuck for a regulatory reason. But, one has to recognize that it is reasonable to expect in such a mega-merger, especially in sensitive sectors like telecom, that South Africa wanted to protect one of its largest companies from a control standpoint.

From a sentiment point of view, I don't see significant impact on general deal making sentiment as these factors are fairly deal-specific. Protectionism exists across the world in strategic sectors while less strategic ones are more open to cross-border deals.

Any deal with MTN now is necessarily more complicated because of the South African government’s dual listing requirement. A new bidder has to have real guts to court MTN. But, Bharti has indicated in its release that it’s ready to look at MTN again if the governments can thrash out this issue.

Pranay Bhatia, Partner, ELP, Mumbai.

Certainly dual listing has been a hurdle. But, it is still not clear if the deal did not go through due to a failure from India at a regulatory level or South Africa. The country in the past has had given FIPB approval to cross–border deals like that of Vodafone entering India through Hutch. Even though it’s a big loss to the advisors/ i-bankers associated with the deal, they will get a fee.

Vijay Chauhan, Capital Markets and Takeover Team, Khaitan & Co.

Dual listing and open offer obligations under the SEBI takeovers regulations, triggered on proposed issuance of ADRs and GDRs with voting rights to MTN, has turned out to be the major hurdle for the deal. Indian laws do not allow dual listing of shares as insisted by the South African Government. Any permission of dual listing in India will involve changes in its corporate, foreign exchange, securities and tax laws. And, Foreign Exchange Management Act, 2000 and its regulations will have to undergo change allowing capital account convertibility.

Also, holding of 25% in Bharti by MTN, as proposed, through GDRs, would have triggered the open offer requirement, making the deal more time-consuming and process-driven.  Under dual listing, companies retain their separate legal identities while maintaining single economic structure, managers and board of directors appointed by two sets of shareholders jointly.

An ‘equalization agreement’ needs to be entered into to ensure equal treatment to the shareholders and jointly operate and share the profit or losses. There are both pros and cons in dual listing. Theoretically, dual listing contributes to an increase of liquidity of the shares listed as well as value to the shareholders by greater choice to trade. However, it also involves various regulatory and operational hurdles.

Sanjay Bansal, Managing Director, Ambit Corporate Finance Pte Ltd

It was a large and a complicated deal. Just because the Bharti-MTN deal was called off I don't think there will be any impact on the sentiment. People are coming to India for transactions due to the country's growth. There are not a lot of players of the size and scale of Bharti Airtel who are trying to do a cross-border merger. It will have an impact on cross-border deals, but they have been impacted anyways.

I don't see any other Indian company courting MTN now. My personal view is that if any Indian company does a deal with MTN, it will only be Bharti Airtel.

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