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COLUMN – The Limits of Emerging-Market Deal-Making

01 October, 2009

— Eric Auchard is a Reuters columnist. The opinions expressed are his own —

So much for emerging-market solidarity.

A proposed $24 billion deal between Bharti Airtel and MTN of South Africa has fallen apart, not for the usual issues of price or control, but national ego.

The apparent sticking point was that South Africa was eager to retain MTN’s national character and had approached Indian authorities to consider a dual-listed entity, a structure that Indian laws currently do not allow.

The opportunity for a landmark deal in southern economic cooperation, one that would have created the third-largest wireless operator in the world, looks lost. After several failed attempts, it is the credibility of their respective governments, not the companies themselves, that is left in doubt.

The message from the South African government is that international buyers can invest in, but not control, the country’s companies. UK mining conglomerate Xtrata has been a two-time loser there, having abandoned a takeover plan for Lonmin Plc, then met with roadblocks in its offer to buy Anglo American.

India has been more than willing to help its biggest companies push onto the multinational stage in cars, steel and technology. But international companies looking to buy into India have received rough treatment as well.

Every country seems quite happy to have their companies do the buying, but no one wants to see its national heroes sold.

Western countries have used a mix of justifications, from competition to national security, to torpedo attempts by China to buy such prized assets as Rio Tinto or Unocal. The French went as far as to declare yogurt-maker Danone a strategic asset to block a takeover by PepsiCo of the United States.

Beyond the mutual recriminations between Bharti and MTN and their respective governments, the question now is what happens next. The two companies left open the possibility they might find a way to resume a deal. But recent history is not promising.

Bharti and MTN revived talks four months ago, a year after previous negotiations broke down over which executive team would control a merged mobile phone giant with more than 200 million customers across India, Africa and the Middle East.

Bharti could accomplish some of what it is after by stepping into the bidding for rival African and Middle East player Zain. But this has its own political and financial hurdles.

MTN’s options look less promising. A foreign buyer seems like wishful thinking now. The No. 2 South African mobile phone company may have to content itself with the rapid growth taking place in its African and Middle East markets. The South African government is happy to allow it to diversify offshore.

But the road to south-south economic cooperation has been shown to be rockier than the tentative Bharti-MTN deal had promised.

— At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.


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COLUMN – The Limits of Emerging-Market Deal-Making

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