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BHARTI AIRTEL

AND
MTN - THE
UNSUCCESSFUL
DEAL
Indian Telecom Sector

• Fastest Growing Sector – CAGR 22% (2002-07)



• Second Largest Telecom Market

• Total mobile services revenue in India is projected


to grow at a compound annual growth rate
(CAGR) of 12.5 percent during 2009-2013
• The telecom subscriber base is expected to cross
770 million connections by 2013, growing at a
CAGR of 14.3 percent from 452 million in 2009

Revenues of Indian Telecom Industry:
2002–07 (USD billion)

50 43
40
Revenues (USD billion)

30
20
20 15
9 10 11
10

0
2002-032003-042004-052 005-062006-07 … .. …. 2009-10
Group Company wise % market share - Aug'2009

Sl. No. Name of Company Total Sub Figures % Market Share

1 Bharti Airtel 10,79,96,533 32.19%

2 Vodafone Essar 8,08,74,460 24.11%

3 BSNL 5,20,56,417 15.52%

4 IDEA 5,00,58,471 14.92%

5 Aircel 2,44,15,514 7.28%

6 Reliance Telecom 1,32,81,225 3.96%

8 MTNL 43,52,781 1.30%

9 Loop Mobile 24,17,446 0.72%

All India 33,54,52,847 100.00%


Bharti Airtel
• Established : July 07, 1995, as a Public Ltd. Company.

• Business Description : Provides Mobile, Telemedia


services(fixed line) and enterprise services(carriers &
service to corporates)

• Largest Private Integrated Telecom Company in India



• 3rd Largest Wireless Operator in the World and Largest &
Fastest Growing Wireless Operator in India

• Largest Telecom Company listed on Indian Stock
Exchange

Performance till date

• Bharti Airtel has enjoyed an excellent run ever since


the telecom sector opened.

• It has managed to hold on to its leadership position


inspite of the presence of other players with deep
pockets – Ambani’s, Tata’s, Birla’s and Vodafone.

• Has coped well with regulatory changes.


• Continues to attract and delight customers.


ifferent GSM operators in terms of subscriber base as
FUTURE STRATEGIES

• Translate its expertise in Indian markets to other


emerging economies.

• This could call for acquisitions globally.

• To explore international expansion opportunities
that are consistent with its vision and bring value
to its shareholders

• Indian market inspite of being the worlds largest is


still not matured. Opportunities abound in the
hinterland which must be exploited.
THE VISION OF
EXPANSION LED TO
TALKS OF
ACQUISITION OF
SOUTH AFRICAN
TELECOM GIANT MTN
Why MTN?? ??
• M-Cell incorporated MTN in South Africa Launched in 1994
• Is a leading provider of communication services, offering
cellular network access and business solutions
• Is a multinational telecommunications provider
• Core operations in 24 countries in Africa and the Middle East
• Presence in key markets such as Nigeria, Ghana, Cameroon,
Uganda etc.
• Regardless of recession at the end of December 2008, growth
expanded by 48% to 90,7 million recorded subscribers
• Group subscribers up 14% to 103,2 million from December
2008
• Listed in South Africa on the Johannesburg Securities
Exchange (JSE) under the Industrial – Telecommunications
sector



MTN OPERATES IN THESE COUNTRIES
TALKS BEGAN IN MAY 2008
WITH….
• MTN asked for $50 billion, Bharti was willing to go up to
$45 billion

• Bharti offered the chairmanship of the post-deal entity to


Matamela Cyril Ramaphosa, the non-executive
chairman of MTN

• Bharti offered 70 per cent stock and 30 per cent cash,


MTN's preferred ratio was 50-50.

• Bharti offered 170-175 rand per share to MTN


shareholders, But four of MTN's largest shareholders
wanted at least 180 rand per share
Structure of the Deal entered
in new Phase…..
• Bharti looked to acquire 51 percent stake in MTN while MTN wanted
Bharti to buy out the 100 percent stake

• Bharti had arranged funds through debt for buying about 51 percent
• 100% stake was not possible as the net profit of MTN stands at $1.4 billion,
which would not have been enough to service the debt that is required to
complete the deal.
• As per Broad-Based Black Economic Empowerment regulations, 20 percent
of the ownership of a company operating in South Africa needs to be
with the black people.
• But, for this the merged company needs to get itself listed in the South
African stock market which was a long and complex process
• Crossing the limit of FDI was also a concern for Bharti Airtel

THESE CONTRADICTIONS
CALLED OFF THE MUCH
HYPED DEAL BETWEEN
THE TWO TELECOM
GIANTS
If the deal was through it....

• Would create the world's sixth largest mobile


operator, boasting over 130 million subscribers in
more than 24 countries
• This transaction would have been the single largest
FDI into South Africa and one of the largest
outbound FDIs from India
• India’s biggest Cross-border deal, almost thrice the
size of Tata Steel’s $13 billion buy of Corus in
2006
• New and bigger market for Airtel to explore other
than India and Sri lanka


RCOM, MTN MERGER
TALKS STARTS SOON
AFTER FAILURE OF
BHARTI-MTN DEAL
The Unsuccessful deal..
• Anil Ambani group company RCOM started discussions
for a possible tie up with MTN
• Agreed on a 35:100 swap formula i.e. RCom
shareholders will get 35 shares of the merged entity
for every 100 RCom shares they hold.
• The merged entity would be valued at an estimated $36
billion, with revenues of over $14 billion and an
operating profit of nearly $6 billion with over 100
million customers.
• But as per the family settlement signed in 2005 RCom
may have to be offered to Mukesh before being sold
to anyone else
• The deal was called off due to certain regulatory issues
as per the officials of both the companies


Bharti, MTN Re-Engage in
Merger Talks On May26,2009
• As per the proposed structure, Bharti would have
acquired 49% shareholding in MTN
• In turn MTN and its shareholders would acquire about
36% economic interest in Bharti.
• As per the provisions of the Takeover Code of SEBI
Bharti cannot acquire any voting rights through the
GDR/ADR route
• The South African government demanded dual listing of
MTN in order to protect the character of MTN as
South African entity
• India Denied MTN for dual listing
• The deal was again called off
• If we go by the sources the deal fell through because of
South Africa's political compulsions
Why India said no to dual
listing??
• In India dual listing is not permitted under SEMA and the
Company law
• Would have affected India’s foreign direct investment
policy
• Would have led to huge tax losses to the government
• Would have weakened the oversight of market regulator
SEBI as it would not be able to monitor overseas
stock exchanges
• Structure would have led to an export of capital market
• It also had risks of multi-currency settlement
infrastructure
Concept of Parallel listing

• In a latest development, the South African


treasury insisted on a parallel listing via the
trust route.
• Such parallel listing would see two trusts being
listed, one in India and one in South Africa.
• Both trusts would mirror a share swap deal.
• Such parallel listing would have been compliant
with existing Indian laws
• Capital account convertibility would not arise.

Conclusion
• The deal appeared to offer growth as well as scale to both
operators
• MTN offered Bharti more growth options than the other way
round
• Average revenue per user for Bharti($11) is quiet less than
MTN($18)
• Big shareholders, along with Treasury and the General realised
that global depositary receipts (GDRs) are pretty worthless
to South Africans.
• The convertibility of the rupee in India was the main obstacle
• Indian government is not willing to change laws for a single
company

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