BHARTI AIRTEL AND MTN

THE DEAL WHICH IS DEAD…..

Presented By :
Neha Agarwal (136)
Asha Jaikishan (126)
S. Pramoth (148)
Archit Bansal (125)
Ashwini Kumar(128)
Bharti Airtel
 Telecom giant Bharti Airtel is the flagship company of Bharti
Enterprises.
 Started its operations in 1995.
 Operates in 23 telecom circles
 Has 101,114,971 or 24.2% GSM connections in India till
February 2009
 presently the Number 1 operator in India.
 In 2009 Airtel also launched in Sri Lanka.
  Three individual strategic business units 
  Mobile Services
 Airtel Telemedia Services
 Enterprise Services
 BHARTI MTN
REVENUE ( FY, 7.7 12.3
2009) (USD bn)
CUSTOMER 108 (Aug 2009) 100 ( May 2009)
BASE(mn)
ABOUT MTN

 It is a global communication partner and world class

cellular network
 launched in 1994, it Operates in 21 countries in Africa and
the middle east.
 The MTN Group is listed in South Africa on the
Johannesburg Stock Exchange under the
Telecommunications Service Sector.
Time Line for BHARTI-MTN deal

 May 5, 2008: MTN acknowledged deal talks with Bharti Airtel.

 May 24,2008: Talks between Bharti and MTN were called off.
 May 26,2008: Reliance Communications, India's No 2 mobile operator,
started 45-day exclusive talks with MTN led by Anil Ambani, but the talks
fell through.
 July 18,2008: Reliance and MTN call off talks.
 May 25, 2009: Bharti and MTN announced a revival of merger talks.
 May 27,2009: Four of MTN's top 25 shareholders rejected a tie-up with
India's Bharti based on terms unveiled.
 May 29,2009: But MTN's No 2 shareholder, Lebanon's Mikati family,
came out in support of the merger talks.
Cont….
 June 2,2009: MTN's biggest shareholder, state pension fund Public
Investment Corporation supported the merger as well
 July 7,2009: MTN and its shareholders can buy 36 per cent in Bharti
Airtel via global depositary receipts without triggering a mandatory open
offer.
 July 30,2009: An Indian government minister says talks between Bharti
and MTN, which could eventually lead to a full merger of the two firms,
have not been finalised yet.
 July 31. Standard Chartered is advising Bharti in the merger talks with
MTN.
 Aug 7,2009: India's finance minister says Bharti has approached the
country's largest lender, State Bank of India, for loans of $1 billion and 50
billion rupees ($1.05 billion).
Cont….
 Aug 18,2009: Bharti has received bids from more than a dozen foreign
banks, including Citi and JPMorgan, to fund its proposed stake buy in
MTN, the Economic Times reports, raising hopes for a deal.
 Sept 22,2009: Sebi revises takeover code, which mandated GDRs with
voting rights, would trigger a open offer if the holding crossed 15 per
cent. 
 Sept 24,2009: South African officials and MTN officials meet Sebi and
RBI to discuss dual listing.
 Sept 30,2009:Sunil Mittal-led Bharti called off discussions with MTN
citing the South African government's rejection of the proposed merger
structure, which would have created the world's third largest telecom
company with combined revenues of over $20 billion annually and a
subscriber base of over 200 million.
 Key highlights of the deal

•Bharti will acquire a 49%shareholding in MTN, which along with its

shareholders, will acquire an economic interest of approximately 36% in
Bharti, out of which 25% will be held by MTN and the remainder by its
shareholders.

• The combined entity will have a customer base of 200 mn subscribers (100
mn subscribers each of Bharti and MTN) and combined revenues of over
$20 bn.
 Key highlights of the deal

•Bharti will act as the primary vehicle for both Bharti and MTN for pursuing
further expansion in India and Asia,while MTN will be the primary vehicle for
both Bharti and MTN for further expansion in Africa and the Middle
East.
•As per the proposed scheme of arrangement, MTN will acquire a post-
transaction economic interest of approximately 25% in Bharti for an effective
consideration of about $2.9 bn in cash and newly-issued shares of MTN, close
to 25% of the currently issued share capital of the South African firm.
• Bharti will have substantial participatory and governance rights in MTN, thus
enabling it to fully consolidate the company’s accounts.
Key highlights of the deal

•MTN's economic interest in Bharti will be equity accounted and the

company will enjoy appropriate representation on its board.
• Bharti will acquire approximately 36% of the currently issued share
capital of MTN from its shareholders for a consideration of ZAR 86.00
in cash and 0.5 newly issued shares of Bharti in the form of Global
Depository Receipts (GDRs) for every acquired share of MTN which, in
a combination with MTN’s shares issued in part settlement of its
acquisition of a posttransaction economic interest of approximately
25% in Bharti, will take the company’s stake to 49% of MTN’s enlarged
capital.
Bharti offers last mile sops to wrap
MTN deal on 22nd Sept, 2009

 Bharti Airtel has offered to retain the top management at MTN for at
least three years

 In the revised tie-up plan, MTN was to get a 27-% stake in Bharti instead
of the 25 % earlier proposed

 MTN's minority shareholders were given the option to take $13 billion in
cash instead of $7 billion cash and $6 billion worth of stock.
WAS THE DEAL VALUE ACCRETIVE?

 The deal will make the Bharti-MTN combined entity the

world’s third largest mobile operator.

 MTN will expand Bharti’s presence in an additional 21

countries. In terms of global presence, Bharti currently has a
presence only in Sri Lanka, Seychelles and Channel Island.

 Access to the market with higher ARPU as compared to

India.
Backlogs of the deal
 MTN already has 100 mn subscribers and its geographies with
a high GDP/per capita are already saturated. Bharti will, thus,
find it a tough task to increase the number of subscribers in
geographies with a low population and GDP/per capita.
• Since MTN operates across 21 geographies, there could also
be integration issues and delay in unlocking of synergies
between the two entities.
 The deal will also result in a significant earnings dilution for
Bharti over the short term, which could have a significant
negative impact on its stock price.
 It can create a debt pile of $ 4 billion on the bharti’s balance
sheet.
Importance to Telecom industry..

 There is not much juice left in the Indian telecom market.

 Indian Telecom Market will reach stagnation by the end of
2010, while African market is estimated to grow at 40 %.
 On the ARPU front, Africa ranks better than India.
 As compared to India, in Africa, per-minute prices are higher,
demand for SMS over voice is limited because of low literacy
levels.
 It would yield cost savings, allow for technology sharing, and
provide financial muscle for more expansion.
WAS THE DEAL VALUE
ACCRETIVE?
• The deal will make the Bharti-MTN combined entity the world’s third
largest mobile operator after China Mobile and Vodafone, in terms of
the number of subscribers.
• The combined entity will be amongst the top five operaters globally.
• MTN will provide Bharti access to the African and Middle East
markets which are under penetrated and have a higher ARPU as
compared to india.
•MTN will expand Bharti’s presence in an additional 21 countries. In
terms of global presence, Bharti currently has a presence only in Sri
Lanka, Seychelles and Channel Island.
• It would yield cost savings, allow for technology sharing, and provide financial
muscle for more expansion.
Was the deal value
accretive ?
 Estimated EPS dilution of Bharti Airtel…
The proposed merger, if completed, will
result in an increase in Bharti’s shares from
1898 mn to 2979 mn, marking a dilution of
57% in the company’s shares. Assuming that
the merger is effective from April 1, 2009,
the deal will result in a dilution of 9% in
Bharti’s EPS for FY10E & 5% in FY11E
Backlogs of the deal
MTN already has 100 mn subscribers and its geographies with a high
GDP/per capita are already saturated. Bharti will, thus, find it a tough task
to increase the number of subscribers in geographies with a low
population and GDP/per capita.
•Since MTN operates across 21 geographies, there could also be
integration issues and delay in unlocking of synergies between the two
entities.
The deal will also result in a significant earnings dilution for Bharti over
the short term, which could have a significant negative impact on its stock
price.
 It can create a debt pile of $ 4 billion on the bharti’s balance sheet.
Why the deal was called off

The Sa govt was insisting Indian govt to change laws to

accommodate DLC structure. And India rejected because it
would have meant allowing capital account convertibility
and amending the Companies Act & listing agreement to
facilitate a single deal.
Dual Listing
 A process by which a company would be allowed to be listed
and traded on the stock exchanges of two countries.
 The dual listing system would allow the companies to retain
their separate legal identities.
 Done to protect the national identities of the two companies.
 From the shareholders' perspective they can buy and sell
shares of both the companies on the stock exchanges in the
two countries.
Reasons for non acceptability of Dual
listing by India.

 the existing FDI policy framework would have been rendered unprofitable. (as
Indian authorities would not have been able to monitor sectoral caps on direct and
indirect investment that are imposed on 13 industry sectors, including telecom.)
 Ineligible entities for investing in Indian companies could have acquired a stake
through transactions carried out on the overseas exchange, in violation of the
Foreign Exchange Management Act (Fema)
 Weakening of the SEBI’s oversight of the stock market, led to trading activity being
taken away from stock exchanges in India and a likely revenue loss for the Indian
exchequer.
 Another important bottleneck that the government of India should consider is
removing the cap on capital account convertibility.
After the deal….
 Bharti Airtel Ltd’s shares had risen 4% to Rs435 soon after its talks with
South Africa’s MTN Group Ltd were called off. But that relief rally was
short-lived, with its shares falling by 8% to Rs400 on Monday(5 th oct.)
 The decision by the companies has put an end to the uncertainties
over the deal that have been prevailing for weeks. 
 With the termination of the MTN deal, the resouces are free for Bharti
to explore 3G related opportunuties in India and expand its operation
in Sri Lanka.
 Chairman Sunil Mittal stated that he would continue to search globe
for acquisitions.
 Bharti is valued higher compared to the other two peers (reliance
communications and idea cellular) in terms of EBITDA and therefore,
Bharti appears to be better placed to take advantage of new
opportunities in the Indian telecom space given its scale and reach.
LOSS TO THE BANKS INVOLVED

 BANKS are set to lose potential fee of over $200

million due to the failure of the Bharti-MTN
transaction. Advisors and bankers to Bharti would
lose about $120 million while MTN’s bankers and
advisors are believed to have lost $80 million.
 Standard Chartered was the lead advisor to Bharti
while Barclays was the joint M&A advisor.
  Bank of America Merrill Lynch and Deutsche
Bank were advising MTN.