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MTN Group Limited. MTN would buy 36% economic interest in Bharti. The deal which potential in nature will materialize only post July 31, 2009. The total size of the two-way deal is about USD 23 billion. Also read: Why are Bharti, MTN still guarded over deal? Here is a transcript of Sunita Nagpal’s comments on CNBC-TV18. Also watch the accompanying video. The Bharti-MTN deal is a potential deal that could happen—it is not a done deal and it will happen only post July 31—that is the time both Bharti and MTN have given for negotiations or approvals to be achieved at. The total size of this two-way deal is about USD 23 billion. In the first leg, MTN will acquire about 25% stake in Bharti and will pay roughly about USD 2.9 billion in cash and will also issue 25% worth of its equity, which is about USD 6.7 billion to Bharti. In the second leg, Bharti will acquire 36% stake in MTN for cash and will also issue global depository receipts (GDR). The cash that the company is paying roughly is about 86 rand, which equals about USD 10.4 per share and also issues half equity share for each share that they acquire from MTN. So, roughly the deal works out in a way that MTN shares are about USD 8.26 billion while Bharti shares are about USD 13 billion. Thus, the outflow from Bharti would be about USD 4 billion. On who gains more: What the deal achieves for Bharti is that they acquire a company which has roughly about 100 million subscribers, which is equal to what Bharti also has. Revenues of MTN are higher than Bharti—it stands at USD 12.33 billion versus Bharti’s USD 7.25 billion. EBITDA wise also—the margins of MTN are better than Bharti and on all other parameters—it is slightly a notch up from Bharti. Considering that the marketcap of Bharti is higher than MTN, the deal is slightly in favour of Bharti. If you look at what EV/EBITDA that this deal is valuing MTN is about 5.5 times EV/EBITDA which is very attractive and it is much lower than what Bharti was paying last time. The combined entity will have revenues of about USD 20 billion and combined subscriber base about USD 200 million. On borrowings: Bharti will have to shell out roughly about USD 4 billion for the deal. They have certain amount of cash on their books but they may have to raise some amount of debt for this transaction to go through. One also has to remember that they have to go for the 3G auction, which is likely to happen post the new government comes into center. Thus, they will also need to keep the money aside for that. Hence, they might have to raise some funds on their balance sheet. However, having said that, the MTN that they are acquiring is not a loss-making company. It has cash on its books, it has been paying dividend for many years now. So it is not a bad deal to do even if you have to take a debt.
In a press release, Bharti Airtel has said it has renewed its effort for a significant partnership with MTN Group Limited and is exploring a potential transaction whereby, pursuant to a scheme of arrangement, Bharti would acquire a 49% shareholding in MTN. In turn, MTN and its shareholders would acquire an approximate 36% economic interest in Bharti. Of this, 25% would be held by MTN with the remainder held directly by MTN shareholders. Bharti and MTN have agreed to discuss the potential transaction exclusively with one another until July 31, 2009. There may a number of reasons as to why Bharti and MTN are closely guarding the news of a possible acquisition and have set a timeline of July 31 for the talks to continue. According to CNBCTV18's Siddharth Zarabi, one of the reasons could be the fact that talks between the two companies had failed the first time; so this time they are being extremely cautious. Second, there is a need to get shareholder's approvals on both sides. Third, the fact that the Finance Ministry, the Industry Ministry and the RBI were divided on FDI norms could have had an impact on their initial talks.
Here is a verbatim transcript of Siddharth Zarabi's comments on CNBC-TV18's. Also watch the accompanying video. Q: What do you have for us?
A: This was something that was happening for the past three-four weeks. The Bharti management had been consistently denying that the talks with MTN have restarted. Yesterday night (May 24) around 9:30 pm, when I spoke to top Bharti management, they gave a hint that a potential transaction may possibly be concluded. In terms of transaction (if you look at the earlier failed attempt), this is at a substantially different valuation and a substantially different structure.
30 on Thursday without giving a specific reason. recently at a press conference. "It gives us more confidence. Bharti Airtel Ltd. This may have been at the back of the mind although it doesn't have a direct impact. there might be some clarity that investors and analyst would like to seek from them and we are trying to get in touch with Bharti for that. is because of a sense of abundant caution and the need to get regulatory approvals. Why is it that this date has been set out and it seems quite guarded towards the end saying talks are still at a preliminary stage? Any idea or sense you are getting on what the thorny point is over here? A: Because of a few things: (1) A sense of abundant caution given what happened last time (2) The need to understand and get approvals on both sides (3) The fact that in India. The two have described their prospective deal as a $23 billion merger. which is different from the first transaction is that Bharti will have control on its existing company in India as well as have governance and participatory rights in MTN’s operations elsewhere. but you never know with these things until the last moment.One of the key things that have happened from that event (failed attempt) is the change of government in India and change in the way FDI norms are calculated. in May revived talks to combine that would create a telecom giant with annual revenue of more than $20 billion and over 200 million subscribers. The second bit. Q: The release does indicate that the aim is to fully consolidate the accounts of MTN with Bharti but I have a question on why they have said that the potential transaction talks will continue till July 31. the timeline that has been set out. MTN and Bharti. although there is progress on that front. In terms of valuations. there were talks (before the new government took over) that the Finance Ministry and the Industry Ministry have different views on the FDI. If there is a review it may lead to this whole thing being looked at. board structure. . Dow Jones Newswires Friday 21 August 2009 Telcos need more time to resolve pricing issues. around eight-nine weeks from now. I imagine the additional headroom that Bharti has to offload equity also helped the deal. and how many representatives each company will have on the board. "They are still divided on how much Bharti should increase its offer. Chairman and Managing Director Sunil Mittal said Friday the second extension to talks with South Africa's MTN Group Ltd. Clearly. Mittal's comments came after Bharti and MTN extended their talks until Sept. There are also some pending regulatory issues." one of those people told Dow Jones Newswires. signals that a deal may be worked out this time around. Also the RBI had different views despite the Cabinet having finalised the FDI reforms. India's largest mobile phone operator by subscribers. The press release (issued by both the companies) at this point of time does not have the numbers but clearly Bharti and MTN combine will become one of the leading operators in the world and there are clear synergies and a growth road map. there is more accommodation shown by both sides this time. Therefore. had said that substantial part of growth that Bharti expects will come from overseas. People familiar with the situation said Friday that Bharti and MTN have extended their talks to iron out differences on pricing and the make-up of the combined entity's board." Mittal told Dow Jones Newswires by telephone. Bharti Chief Sunil Mittal. Bharti-MTN talks extension signals deal may get done By Costas Paris.
And it could become a unanimous demand for a premium close to $2 billion if MTN's earnings come in above expectations.Mittal said that he wasn't in a position to confirm or deny whether Bharti would sweeten its offer. He has a buy recommendation on the stock and . 27. and a 17% rise in total revenue to ZAR54. tax. A second person said that MTN's management and some shareholders are asking for an additional US$1 billion from Bharti to complete the deal. If (earnings) are strong. I'd say it is 60:40 that the talks will succeed. "Other holders want more.88 billion) in half-year earnings before interest. the shareholders may ask for a higher premium. depreciation and amortization.19 billion. The second person said:"Right now.63 billion rand ($2." Martin Mabbutt. has forecast MTN will post a 15% rise to 22. There will be more clarity when MTN reports its results Aug. This may complicate the talks." said the first person. an analyst at Nomura in London.
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