[WSJ] As Bharti Talks Fail, MTN Eyes Reliance Deal
By DANA CIMILLUCA in London and ERIC BELLMAN in Mumbai [bold mine]
May 27, 2008
South African cellphone company MTN Group Ltd. is in talks to combine with India's Reliance Communications Ltd., the companies said Monday, as talks for a deal between MTN and India's Bharti Airtel Ltd. fell apart.
An MTN-Reliance combination would create a global wireless juggernaut, larger even than developed-market giants such as AT&T Inc., with more than 100 million customers in emerging economies stretching from Guinea to India. AT&T had about 70 million wireless customers at the end of the first quarter.
Since MTN and Bharti announced early this month that they were in talks, rumors have swirled about a rival deal between Reliance and MTN. Much of the speculation centered on a purchase of MTN by Reliance, even though Reliance has a smaller market value.
In separate statements, the companies said they have agreed to 45 days of exclusive negotiations about combining their businesses. The discussions may go nowhere and precise details being discussed couldn't be learned, though a person familiar with the situation said a deal could be structured as a purchase of Reliance by MTN.
Reliance Communications is the flagship company of India's Reliance Anil Dhirubhai Ambani Group, which also includes health, media, energy and financial-services businesses. It has about 46 million wireless customers, compared with 68 million for MTN, which operates in 21 countries in the Middle East and Africa. Anil Ambani is one of India's richest men.
MTN has a market value of about $40 billion; Reliance is valued at just under $30 billion.
Technical obstacles to a deal could be resolved. Though Reliance Communications mainly uses CDMA wireless technology, it also uses the global system for mobile communications that MTN employs and is increasing its footprint for that technology, known as GSM.
Many suitors have circled MTN recently, including Emirates Telecommunications Corp., and no deal has resulted. And the collapse of the Bharti talks late last week shows how difficult it will be for MTN and its bankers at Merrill Lynch & Co. and Deutsche Bank AG to successfully structure a deal with Reliance or anyone else.
Talks between Bharti and MTN began around the beginning of the year, when MTN approached Bharti, a person familiar with the matter said. By the time the companies publicly acknowledged the discussions, they centered on a deal that would give Bharti investors about two-thirds of the combined company, valuing MTN shares at 150 rand to 160 rand ($20 to $21) each, or roughly $27 billion, and hand MTN shareholders an additional $11 billion to $12 billion in cash, the person said. MTN shares closed last year at 128.06 rand and settled Friday at 157 rand.
As the talks evolved, MTN sought a greater stake in the combined company. Negotiations recently centered on a deal that would involve a 1-for-1 share swap, no cash and 50-50 ownership, this person said. Bharti would have been the surviving entity, and the headquarters would have been in India. Sunil Bharti Mittal, Bharti's chairman, would have been executive chairman, and Phuthuma Nhleko, chief executive of MTN, would have been the combined company's CEO.
The deal would have needed the approval of the Indian government, which limits foreign ownership of Indian companies to 74%, given that Bharti is already almost two-thirds foreign owned.
Bharti expected MTN's board to vote on the deal when it met Wednesday. But Bharti said Saturday that MTN came back with "a completely different structure" that would have given Bharti investors only "indirect control of the combined entity."
--Robb Stewart in Johannesburg, South Africa, Romit Guha in Bangalore, India, and Carrick Mollenkamp in London contributed to this article
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