MTN/Bharti extend merger talks

Leading telecommunication companies Bharti Airtel of India and South Africa's MTN Group are engaged in talks to merge. Business watchers say if the deal goes through it would create the world's third-largest mobile operator.

If the talks succeed, the new company would create an emerging markets giant with more than 200 million customers across India, Africa and the Middle East. Both companies are leading mobile service providers in their respective countries.

Talks between Bharti and MTN are supposed to have been concluded by July but were extended. “As discussions between the parties regarding the potential transaction are continuing, both parties have agreed to extend the exclusivity period," Bharti said.

Bharti and MTN revived merger talks in May, a year after previous talks broke down over who would control a merged entity.

"This is the first clear indication from Bharti that the price could be increased and deal may not be in the same form," said Sanjay Chawla, a telecom analyst with Mumbai-based brokerage Anand Rathi Financial Services. "They have room to increase the stock part under India FDI (foreign direct investment) rules. But MTN may ask for raising the cash too. It may well end up as a change in both," he said.

A merger of Bharti and MTN, the top mobile operators in both countries, would create an emerging markets giant with more than 200 million customers across India, Africa and the Middle East.

Percentages
Under the initial terms, MTN and its shareholders would take 36 percent economic interest in Bharti and the Indian firm would end up with 49 percent of MTN.

A combined entity would be the third-biggest mobile operator based on subscribers, behind China Mobile and Vodafone, although its annual sales of $20 billion would be dwarfed by China Mobile's $60 billion and Vodafone's $65 billion. Analysts believe Africa presents a big opportunity for global mobile firms, who are seeing cut-rate competition in saturated markets and are facing falling call tariffs.

The deal would give both Bharti and MTN access to new markets ripe for growth, while a full merger, the eventual aim of the talks, would yield cost savings, allow for technology sharing, and provide the financial muscle for more expansion, analysts said.

Analysts however think the complex deal would take time as some MTN shareholders want Bharti to pay more. "At this stage, there is not much clarity. But a sweetened offer cannot be ruled out as some MTN shareholders want Bharti to pay more," said R.K. Gupta, managing director at New Delhi-based Taurus Asset Management.