1 October 2009

South Africa: MTN Ends Talks With Bharti On U.S. $24 Billion Deal

Johannesburg — TALKS to create the world's third- biggest cellphone group through a $24bn tie-up between MTN and India's Bharti Airtel collapsed yesterday after the Indian telecoms group said the South African government did not accept the deal as it stood.

The rand weakened as much as 2% on the news to R7,62/.

During the talks, there had been speculation that the merger would bring up to R60bn into SA, which would have strengthened SA's current account and the rand.

Bharti and MTN revived merger talks in May, a year after previous talks broke down over who would control a merged entity that would have become an emerging- markets giant with more than 200-million customers in India, Africa and the Middle East.

The groups were working on a deal amounting to about $24bn in cash and stock, in which Bharti would get 49% of MTN and MTN and its shareholders would take a 36% economic interest in Bharti, with a full merger the long-term goal.

Trade in MTN shares was suspended on the JSE at R122,15 at the request of its management yesterday just before the announcement that the talks had collapsed. Trading was expected to resume today. The merger talks had been extended twice, and the last deadline was yesterday.

Finance Minister Pravin Gordhan said MTN had advised him that both companies "mutually decided" to terminate discussions, as they "were not able to conclude all outstanding matters to enable the transaction to proceed".

Gordhan said the South African government was supportive of local companies growing and diversifying offshore, and the structuring of such deals was best left to the companies.

"When companies structure their relationships outside the current exchange-control regulatory framework they require the approval of the minister of finance ... this was the case of the proposed MTN Bharti merger."

He said the finance ministries of SA and India were committed to laying the basis for the "development of mutually beneficial mechanisms for such mergers".

Earlier yesterday, Communications Minister Siphiwe Nyanda said MTN should remain a domestic company. "It would be sad if we saw this entity move into the hands and management of foreign nationals," he said.

SA had approached the Indian authorities to consider a dual-listed entity, a structure Indian laws did not now allow.

Nomura International emerging markets economist Peter Montalto said Bharti had blamed the abandonment of the deal on the South African government's position of insisting on a dual listing and South African management.

"We stand by our view that there has not been any undue influence from the left around this deal, and the government's demands were not unreasonable, given that Bharti did not propose to have majority ownership."

"Some greater clarity around how the Reserve Bank would have dealt with the large potential flows involved with this deal or future ones would be helpful," Montalto said.

Lindsey McDonald, analyst at Scott & Sullivan research consultancy, was not "completely surprised" that the deal had been abandoned.

That the parties could not get a dual listing had been the biggest hurdle, McDonald said.

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