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Bharti-MTN deal stretch gets longer

A deal between Bharti Airtel and South Africa’s MTN to create a transcontinental mobile behemoth may miss the stipulated deadline even as a team of officials from the Indian company travels to Johannesburg next week to try and crystallise financial terms that could include a sweetened offer.

All efforts are on to seal the $24-billion deal by the last week of this month, but it may take a few days more as the two sides attempt to satisfy South African regulatory queries, mainly related to the management structure, two people with knowledge of the situation said.

“Some queries have been raised by the (South African) government that MTN is in the process of satisfying. That may take some time and may result in the deal spilling over to next month. But it’s (an extension) no big deal as both parties are agreed on other issues,” one person familiar with the matter said.

The person added that a team led by Bharti director Akhil Gupta was likely to travel to Johannesburg next week to thrash out the financial details of the deal. Mr Gupta did not respond to phone calls and SMSes and a spokesman for Bharti declined to comment.

Bharti and MTN are struggling with mostly unspecified regulatory issues in South Africa and India, and also a bunch of investors who are demanding their pound of flesh in the biggest cross-border deal this year that could help the combined entity arrest sliding revenue growth at home and expand in potential markets of Africa and the Middle-East.

The New Delhi-based company may end up sweetening its offer more because of an appreciating South African rand against the US dollar than the price, said the second person familiar with the transaction.

Bharti may raise the offer by 7% to $14 billion, largely bumping up the cash element of the offer to $10 billion from $7.6 billion earlier, the person said. It plans to pay $4 billion in stock for a 49% stake in MTN.

The company has also told its lenders that it may borrow more than the originally planned $5 billion. The company was planning to borrow $3-3.5 billion from eight foreign banks and $1.5-2 billion from Indian lenders.
The deal between Bharti and MTN will be India’s biggest cross-border transaction to date, surpassing Tata Steel’s acquisition of Corus for $12.2 billion in 2007. It will also create a global telecom powerhouse with more than 200 million subscribers and revenues over $20 billion. The proposed deal’s contours, unveiled in May, involve MTN taking a 25% economic interest in Bharti Airtel for $2.9 billion plus new shares in the South African telco that is equivalent to 25% of MTN’s existing shares. Besides, MTN shareholders will get an 11% stake in Bharti Airtel through GDRs that will be listed on the Johannesburg Stock Exchange.

The Indian telco will buy 36% of MTN shares for $7.6 billion at 86 rand per share, which on an expanded equity base will come down to 29%. Bharti will pick up an additional 20% by subscribing to fresh shares issued by the South African firm.

Earlier this week, Bharti denied a Bloomberg report that it had reached a preliminary agreement to buy stake in MTN. The news agency said MTN’s minority shareholders will be able to opt for an all-cash payment, and the South African firm and its shareholders are set to buy 33% of Bharti for about $10 billion.

But reports said Bharti may still find the deal elusive, with some MTN shareholders not keen on accepting a sweetened offer.

“We wanted all cash and we wanted a higher price. An all-cash offer is great, but it doesn’t address the price issue,” Bloomberg cited Pallavi Ambekar, a Cape Town-based analyst at Coronation Asset Management Ltd, as saying. Coronation owns 5% of MTN. At least, 75% of MTN shareholders have to approve the deal.

Bharti, which is looking to keep the cost of acquisition low, is also looking at dollar payments for large MTN shareholders and in South African rand to small shareholders, a banker familiar with the matter said.

Source: Economic Times

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