The MTN-Reliance Communication (RCOM) deal structure, which has seen a number of permutations and combinations, now seems to be taking a new shape. Under the new (probable) structure, RCOM along with some Middle East private equity and sovereign wealth funds, are planning to form a special purpose vehicle (SPV) which will have a majority stake of around 51 per cent in MTN. RCOM will have the majority stake (of around 68.5 per cent) in the SPV. This would mean RCOM, instead of ADAG, will be the controlling shareholder of MTN.

This would then imply that RCOM will have to bank upon a whitewash procedure as the South African stock exchange rules require any acquirer to launch an open offer if its holding crosses 35 per cent stake in a company. RCOM is looking to acquire a stake marginally lower than the threshold limit.

Subsequently, RCOM will look at a ‘whitewash’ procedure under which MTN’s shareholders will be asked to vote to waive their right to a tender offer. If the shareholders agree, RCOM will scale up its stake to 40 per cent in MTN. Otherwise, it will sit with a stake just under 35 per cent.

However, RCOM will emerge as the single largest shareholder even with its 35 per cent stake. Newshelf 664, a trust, is currently the largest shareholder with its 13 per cent stake while the Beirut-based Mikati family holds 10.2 per cent and PIC has 9.7 per cent stake. The remaining 67.1 per cent is widely held.

According to two identical newsreports (Financial Times and The Economic Times - which seem to be a case of selective newsleak), the new deal structure is to neutralise the potential legal hassle with Mukesh Ambani’s Reliance Industries which claims a right of first refusal if RCOM were to enter into a reverse merger with MTN. Under that structure, MTN would have made an open offer for RCOM followed by a share swap between Anil Ambani’s Reliance ADAG and MTN. ADAG would then have emerged as the single largest shareholder of MTN while RCOM will become subsidiary of MTN.

According to the ET report, the reverse merger plan, which could see a legal faceoff between the two Ambani brothers, has not been ruled out, but RCOM is also examining the option of acquiring a 40 per cent stake in MTN along with a Middle East-based sovereign wealth fund for the acquisition of the controlling stake in MTN.

However the new combination mean RCOM holding 35-40 per cent in MTN which will imply RCOM will not be able to consolidate MTN’s revenues with itself, which would have made RCOM-MTN combine bigger than Reliance Industries.

ET report adds that MTN could be valued at $35-40 billion against its ruling market cap of nearly $30 billion for the transaction. So, RCOM will have to chip in $12-14 billion for the purchase of 35 per cent. Its fund requirement will go up if the MTN shareholders allow it to acquire another 5 per cent stake. In addition to the foreign fund’s equity contribution, the SPV will raise debt to finance the deal which will reduce the pressure on RCOM’s balance sheet for funding the deal.

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