Lesley Stones
3 June 2009
Johannesburg — MTN's proposed 23bn tie-up with India's Bharti Airtel has won the support of its largest shareholder, the Public Investment Corporation (PIC), although the PIC wants a better offer for its shares.
The state-owned asset manager supported the deal in principle, said CEO Brian Molefe, but he believed there was "room for improvement" in the price being offered.
PIC support adds weight to the likelihood of a cross-ownership deal between the two operators through a 23bn cash and share swap. This figure has not changed since the operators first outlined a deal still being negotiated.
"Because of the strategic imperative, yes, we will support the deal, but it depends on how they are going to negotiate, how the final details are going to look," Molefe told Reuters yesterday.
"I would say there is room for improvement on the price." The PIC owns more than 13,5% of MTN, but it has not clarified its exact stake since helping unravel a share ownership deal for MTN staff.
Last year, after MTN's previous merger talks with Bharti and another Indian operator, Reliance Communications, collapsed, analyst Rajay Ambekar of Cadiz Asset Management said he had canvassed the PIC on its views.
"We asked the PIC if it was keen to see MTN as a subsidiary of another company, and they made it clear that it was a South African champion," Ambekar said.
Yet Molefe has said investments by foreign companies are welcome for bringing wealth into SA. "This is a globalising world," he said at a conference last year. "We can't be incestuous. We must promote cross-pollination, as we also go there to do business. We can't pretend that the world doesn't exist."
Yesterday, Molefe echoed that welcome for foreign investors, tempered by a desire not to see South African companies subsumed completely, when he said the main issues to consider were price and how much influence MTN would retain if the operators merged.
The new proposal would see Bharti take 49% of MTN, while MTN and its shareholders would hold 36% of Bharti. That degree of cross-ownership might alter, however, as some analysts believe MTN is coming out as the underdog.
Tying Africa's largest operator to the largest player in India has already garnered support from MTN's second major stakeholder, Lebanon's Mikati family with 10%.
"We are fully supportive of the transaction. It will add value for both Bharti Airtel and MTN shareholders," said Azmi Mikati, CEO of the family's M1 Group.
The proposed transaction needs approval from at least 75% of MTN shareholders, and several smaller investors want Bharti to sweeten the deal.
Reuters said the initial offer implied a bid of R132-R134 per MTN share. The trading price of about R124 suggested uncertainty that the deal would reach fruition.
The Indian press has quoted several unnamed banking sources as debating whether Bharti may be prepared to dig deeper.
Analyst Sanjay Chawla of Mumbai brokerage Anand Rathi Securities thinks Bharti may pay R160 per MTN share.
"Bharti has not said it is the maximum price they are paying ... to appease a certain section of investors they might go for it."
Bharti could fund the move by taking up to 3,6bn in credit offered by its 30,4% owner, SingTel. That could see SingTel own about 12% of MTN.
SingTel operates in Singapore and Australia as well as in India, and reportedly favours the deal
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as a way of expanding in Africa and the Middle East.
MTN and Bharti would together serve more than 200-million subscribers, and have a combined revenue of 20bn. Both groups said the move would give them access to the "fast-growing and underpenetrated" countries in which their potential partner operates. They also cited the benefits of massive economies of scale for better buying power, and the ability to share best practices.
Analyst Mike Davies of Eurasia said the complex exchange of cash and shares raised regulatory concern in both countries, but they were not likely to be enough to block the deal.
The transaction may test India's confusing new rules on foreign investment, which could result in delays. However, Indian Finance Minister Pranab Mukherjee had spoken out in favour of the deal, Davies said.
"Indian officials were excited about the prospect of the Bharti-MTN deal a year ago, in the hope that such corporate deals would provide a broader gateway for India in Africa, where it feels it has lagged behind China in expanding commercial relationships. So, regardless of any further revisions or clarifications to the foreign investment rules, the government is unlikely to allow regulatory hurdles to obstruct this deal," he said.
The Congress of South African Trade Unions (Cosatu) has already said it was unlikely to derail the talks, despite its effort to scupper the deal that saw Telkom sell 15% of Vodacom to the UK's Vodafone. Cosatu's protest had been an attempt to block the privatisation of a public asset, but MTN was already privately owned, said spokesman Patrick Craven.
"We remain concerned that another foreign company may take control of another key South African telecoms company, (but) we haven't taken a decision on blocking the deal," he said. With Reuters.
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