The Hindu Business Line : Bharti Airtel-MTN deal hinges on pricing

New Delhi, May 7 Bharti Airtel is interested in taking a controlling stake in South Africa’s MTN but it will depend on the price. Sources close to the negotiations told Business Line that the talks could fail if the price is too high. However, they did not indicate as to when an offer would be made.

Apart from pricing Bharti will also have to deal with counter bids from other operators who are also eyeing an entry into the African market. A number of operators including those from China, Russia and Europe are keen to pick up a stake in MTN, given its pan African presence across 21 countries. Though no operator other than Bharti has so far admitted to the interest in the South African company, analysts are expecting counter bids over the next few days.

Active role for singtel

Meanwhile, Bharti has roped in Singapore Telecom to be part of the discussions with MTN. SingTel holds about 30 per cent stake in Bharti Airtel and would have got involved in any case but sources said that the Singapore-based company may play a more active role.

Analysts said that MTN would be a good fit for Bharti Airtel given that the two companies are equal-sized entities in market value. MTN’s market cap of $35 billion compares with $42 billion for Bharti. MTN’s 68 million wireless subscriber base also compares with Bharti’s 62 million. Alpine Trust, a consortium of MTN management and a private family, is the single largest shareholder with 23 per cent stake in MTN. South Africa Government Pension Fund holds 13.5 per cent. Merrill Lynch and Deutsche Bank are financial advisors to MTN.

While sources said that a number of options are being looked at in order to thrash out an agreement, reports suggests that MTN was quoting a premium.

If the deal goes through then Bharti and MTN would become the fifth largest mobile operator in the world with a significant presence in Africa, India and West Asia. It will also give Bharti a footprint in the African telecom market which has been dominated by local operators and European majors, including Vodafone Group and France Telecom.

Bharti has been trying to get a foot hold into the African market for some time now. Earlier it was in talks with the Gabonese Government to acquire a stake in the country’s national operator. Bharti had also bid for licences in some of the African countries, which has opened up its market to foreign investments.

One of the key issues for Bharti will be to raise funds for the acquisition. Reports suggest that the company is already in talks with a number of institutions including Standard Chartered, Deutsche Bank and J P Morgan. Analysts indicated that Bharti may have to cough up as much $20 billion for a 51 per cent stake.

SingTel’s backing would reduce the burden to some extent though Bharti may still have to raise debt to fund the acquisition.

DBS Vickers said in a report that Bharti will likely fund the takeover partly through debt and equity with around $7 billion being raised through a capital increase.

“It implies that SingTel can raise its stake in Bharti (currently valued at around $13 billion) substantially, which SingTel management has been very keen for quite some time,” the report said. Bharti officials were not available for comment.

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