10/21/2009

ASSIGNMENT
: AIRTEL & MTN DEAL

NEHA SHARMA | PGDM

Bharti Airtel, is Asia’s leading integrated telecom services
provider with operations in India and Sri Lanka. Bharti Airtel
has been at the forefront
of the telecom revolution and has transformed the sector with
its world-class services built on leading edge technologies.

Bharti Airtel Limited, a group company of Bharti

Enterprises, is Asia’s leading integrated telecom
services provider with operations in India and Sri Lanka,
with 100 million customers. Bharti has been voted as
India's most innovative company, in a survey conducted
by The Wall Street Journal. For more information
CUSTOMER RELATION OF
AIRTEL:
Maritime Telecommunications Network
(MTN)
supplies broadband solutions for voice, data,
Internet and compressed video for maritime
applications as well as rapid-deploy terminals
for terrestrial applications.

MTN maintains a global network based on

TCP/IP technology that provides flexible, cost
effective, high-speed satellite solutions and
the highest standards of quality

BACKGROUND:::
• Founded in 1981 as Crescomm
Transmission Services
• Pioneered mobile VSATs in 1986
– first to offer a stabilized
(transmit/receive) VSAT solution for
vessels at sea
• Over 200 stabilized and rapid-deploy VSAT
systems in service today
• Over 50 installations contracted for the
next 12 months

HIGHLIGHTS:::
• Over 20 Years Experience in Satellite
Telecommunications
• Global IP Network
– True Seamless Global C-Band Coverage
– Regional Ku-Band Coverage for Europe,
Middle East, & Americas
• Complete Turnkey Solutions Including
Telephony, Data, Internet, Terrestrial &
 VPN Network Integration, Value Added
Enhanced Services, Billing Solutions and
More
• Extensive Monitoring and Reporting
Capabilities
• Experienced, Full-time Technical and
Corporate Staff
• Engineering and Consulting Services

TERRITORIAL NETWORK OF MTN

 The proposed partnership deal of Bharti Airtel and South African
telecom giant MTN will be the first telecom company that will test the
new norms for foreign investment announced under Press Notes 2, 3
and 4 in February 2009.

Since the effective foreign ownership in Bharti Airtel (including the proportionate
foreign ownership through the parent company), is set to cross the threshold limit
of 74 per cent after consummation of this transaction, it is expected to approach
the government for approval under the new norms, said a leading investment
banker on condition of anonymity.

Under the New Telecom Policy, 2005, foreign ownership, including foreign direct
investment (FDI) and portfolio investment in telecom, is capped at 74 per cent.
However, under Press Notes 2, 3 and 4, the foreign holding in the parent company
— in this case Bharti Telecom, which owns 45 per cent in Bharti Airtel — will not
be counted, since the Indian promoters own more than 50 per cent in it.

Therefore, Bharti Telecom’s entire stake of 45.3 per cent (pre-transaction) in Bharti
Airtel and 28.78 per cent (post transaction) will be considered Indian holding under
the new norms.

In Bharti Telecom, the foreign holding is a little above 40 per cent. Singtel,
currently the largest foreign investor in Bharti Airtel, with 28.46 per cent, owns 28
per cent of Bharti Telecom (as a result, it has a 12.86 per cent pro-rata ownership
in Bharti Airtel) and another 15.58 per cent directly in Bharti Airtel. In addition,
Vodafone also owns nearly 10 per cent in Bharti Telecom, which gives the
European service provider a pro-rata control of 4.4 per cent in Bharti Airtel.

However, Reserve Bank of India and the Department of Economic Affairs have
already expressed their strong reservations on Press Notes 2, 3 and 4, for allowing
companies to breach sectoral FDI limits by creating multi-layered investment
models. The objections are awaiting clarifications from the commerce and industry
ministry.
Bharti Airtel would be the third major company to test the new FDI norms. UTV
Software Communications, 60 per cent owned by the US-based Walt Disney, is
exploring the possibility of increasing its holding to 49 per cent in UTVi, the
business news channel. Similarly Pantaloons India has restructured its retail
business and is planning to bring in FDI by creating multi-layer holding-cum
operational companies.

The proposed partnership deal of Bharti Airtel with South African telecom major
MTN, if it gets a green signal from the regulatory authorities, will bring down Sunil
Mittal’s effective ownership to below 18 per cent. Mittal, who is chairman and
managing director of the company, will then become the third-largest shareholder
after MTN and Singtel.

POTENTIAL OF THE DEAL STRUCTURED AS:-

▪ MTN would acquire approximately a 25% post-transaction economic
interest in Bharti for an effective consideration of approximately USD
2.9 billion in cash and newly issued shares of MTN equal to
approximately 25% of the currently issued share capital of MTN.
▪ Bharti would acquire approximately 36% of the currently issued
share capital of MTN from MTN shareholders for a consideration of
ZAR 86.00 in cash and 0.5 newly issued Bharti shares in the form of
Global Depository Receipts (”GDRs”) for every MTN share acquired
which, in combination with MTN shares issued in part settlement of
MTN’s acquisition of approximately a 25% post-transaction economic
interest in Bharti, would take Bharti’s stake to 49% of the enlarged
capital of MTN. Each GDR would be equivalent to one share in Bharti
and would be listed on the securities exchange operated by JSE
Limited.

▪ Bharti would have substantial participatory and governance rights in

MTN enabling it to fully consolidate the accounts of MTN
▪ MTN’s economic interest in Bharti would be equity accounted and
would have appropriate representation on the Bharti Board

MTN’s CEO Phuthuma Nhleko said that the ‘rationale for this
potential transaction between MTN and Bharti was highly
compelling’: “It
addresses our strategic imperative of becoming one of the pre-eminent
emerging market telecommunications companies with leading
positions in three of the fastest growing wireless markets globally,
India, Africa and the Middle East, with no overlapping footprint.
We are excited at the prospect of teaming up with Bharti, India’s
number one wireless operator and one of the most strongly capitalised
players amongst its emerging market peer group. This would create a
highly visible commercial partnership between South Africa and
India,” Nhelko added.

EFFECTIVENESS:::
“The potential transaction between Bharti and MTN would create a
leading telecommunication service provider group aligning Bharti’s
market leading Indian business with MTN’s market leading African
and Middle Eastern operations. The potential transaction would also
represent a significant development in South-South cooperation
between India and South Africa,” MTN said in a statement.
MTN would continue to be listed on the securities exchange operated
by JSE Limited and would be the primary vehicle for both Bharti and
MTN to pursue further expansion across Africa and the Middle East
while Bharti would be the primary vehicle for both Bharti and MTN to
pursue further expansion in India and Asia.
Singapore Telecommunications, a major existing shareholder of
Bharti, will continue to be a strategic partner and significant
shareholder after the implementation of the potential transaction.
Bharti also added that the potential transaction, when completed,
would be expected to create value for its shareholders synergistic
benefits and enable it to further diversify into the fast growing and
relatively under-penetrated African and Middle Eastern markets.
“This potential transaction would combine the strengths of two leading
emerging market telecom operators to create a leading telecom group
serving the large populations of Asia, Middle East and Africa. The
potential transaction will represent a significant development in South-
South cooperation between India and South Africa. Additionally,
along with Bharti’s partner, Singapore Telecommunications, and its
Bridge Alliance the combined networks will cover a geography
spanning Africa to Australasia,” the company added in a statement.
Both companies also warned that the ‘discussions are at an early stage
and may or may not lead to any transaction’. “The structure and terms
of the potential transaction may be adjusted to reflect further
discussions between the parties and discussions with lending banks
and applicable regulators. No decisions or agreement to acquire any
shares or implement the transactions outlined above have been made
by the Boards of either MTN or Bharti,” they added in a joint
statement.
Standard Chartered Bank and its affiliate First Africa SA (Pty) Ltd are
the financial advisers and AZB & Partners and Bowman Gilfillan are
the legal advisers to Bharti.

source: Economictimes