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Nigeria: MTN, Reliance Merger Talks Fail
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This Day (Lagos)
19 July 2008
Posted to the web 21 July 2008
Efem Nkanga With Agency Reports
Lagos
MTN Group, South Africa's dominant telecoms operator and Reliance Communications of India's proposed merger deal that would have created a global mega telecoms network has failed. The New York Times disclosed that both telecoms operators could not agree despite the extension of the 45 days exclusive period set aside for the talks.
The deal if it had sailed through would have created a top-10 global telecoms group that would have redefined services in emerging markets. A deal would have created a $66 billion emerging markets telecoms giant with operations in about two dozen countries and around 120 million subscribers in Africa, the Middle East and India. "I am not surprised it isn't a deal. I don't think it is a train smash, they (MTN) will look for other areas to access the Indian market," said Jan Meintjes, telecoms analyst at Gryphon Asset Management in Cape Town.
Reliance Communications with billionaire Anil Ambani, at the helm of affairs and the MTN Group started exclusive talks on May 26 that was to run for 45 days. Following the expiration of the 45 days, the deadline was further extended to July 21 to allow both parties to reach a conclusive agreement.
Commenting on the failure of the talks, MTN said in a statement that "Owing to certain legal and regulatory issues, the parties are unable to conclude a transaction."
Accordingly, it has been mutually decided "to allow the exclusivity agreement to lapse..." The extension, announced on July 10, came after an apparent disagreement between the Ambani brothers.
Claims on shares in the Indian company by Mukesh Ambani, estranged brother of Reliance Communications chairman Anil Ambani, and a sharp drop in share prices created obstacles to completing a deal by the original deadline of July 8.
It will be recalled that Reliance and MTN had started negotiations aimed at creating one of the world's largest emerging markets telecoms operators following the collapse of negotiations with another Indian firm, Bharti telecoms, India's largest mobile operator. Under the deal, MTN would acquire Reliance, but Anil Ambani would take control of MTN by swapping most of his 66 percent stake in the Indian mobile operator for shares in MTN. Together with investments from private equity and sovereign wealth funds, he would end up with a stake of between 50 and 51 per cent in the South African operator. This controlling shareholding in MTN would enable Anil Ambani to rebuff the claim from Reliance Industries, controlled by his elder brother Mukesh, that it has a right of first refusal over Reliance Communications.
However a feud arising from the ownership and sharing of shares threw a spanner in the works and contaminated the deal.
One investment banker not directly involved in the deal said a move towards arbitration by Mukesh, who runs Reliance Industries, had raised the odds against a tie-up. "For MTN, considering its size and its shareholding, it makes no sense at all to get involved in a company that is tangled up in legal complications," the banker, who declined to be named, said.
The shares of both companies had in the last few weeks of the exclusive talks been going up and down. Reliance Communications shares ended up 4.1 percent at 435.20 rupees in a firm market towards the middle of May, adding to gains of 4.7. But the shares were down 24 percent from late May when the talks with MTN were first announced. MTN shares closed 2.76 percent lower at 130.30 rand, as analysts in South Africa doubted a deal was on the cards.
Reliance Communications, which has been snapping up smaller overseas assets, recently bought a telecoms firm in Uganda and was one of four bidders last year for control of Telkom Kenya , which went to France Telecom. (NYSE:FTE) It has nearly 50 million subscribers in India , the world's fastest growing mobile market and the largest after China . MTN has about 68 million subscribers, and has pursued an aggressive acquisition spree in risky but lucrative African and Middle Eastern markets, and is eyeing other emerging markets.
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