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Bharti, MTN in $23 Billion Talks

Ray Le Maistre
5/26/2009

Almost exactly a year after they broke off their first round of merger talks, India's Bharti Airtel Ltd. (Mumbai: BHARTIARTL) and pan-African operator MTN Group Ltd. are back at the table discussing a tie-up that would create a multinational carrier with annual revenues of more than $20 billion.

The duo first discussed a merger during May 2008 and almost struck a deal before the talks dissolved. Reliance Communications Ltd. then followed in Bharti's footsteps, but its talks also came to nothing. (See MTN Becomes M&A Magnet, MTN M&A Latest, Bharti Exits MTN Talks, and Reliance Feud Kills MTN Deal.)

Now Bharti Airtel and MTN are again in talks, which will be on an exclusive basis until July 31, though both parties stressed that the talks are still in their early stages and might not result in any transactions.

The proposed deal, a complex set of cash and stock trades valued at around $23 billion, would see Bharti take a 49 percent stake in MTN, and the South African operator take a 36 percent stake in the Indian carrier. The two companies see the move as the first step towards a total merger.

If combined today, the two operators would have annual revenues of around $20 billion and a customer base of more than 200 million across Africa, the Middle East, and India.

MTN's CEO Phuthuma Nhleko stated that the "rationale for this potential transaction between MTN and Bharti is 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.”

Bharti noted that a merger would create an "emerging market telecom powerhouse. Both companies would stand to gain significant benefits from sharing each other's best practices in addition to savings emanating from enhanced scale. We see real power in the combination and we will work hard to unleash it for all our shareholders."

Bharti, India's biggest mobile operator, just announced its customer base had reached 100 million. It ended March with nearly 94 million mobile subscribers and has just struck an outsourcing deal for its fixed-line operations to help manage the ongoing growth of its broadband service. (See Bharti Airtel Hits 100M, AlcaLu, Bharti Form Joint Venture, India Sets Subs Record, and A Guide to India's Telecom Market.)

The Indian carrier also recently announced major increases in revenues and profits for its most recent year, during which it generated revenues of 369.6 billion rupees (US$7.7 billion). (See Bharti Profits From Mobile Boom.)

MTN, which offers mobile services in 21 markets in Africa and the Middle East, broke through the 100 million subscriber threshold in April, having added nearly 20 million new customers during the six months to the end of March this year.

About 26 percent of its customers are in South and East Africa, about 45 percent in West and Central Africa, and 29 percent in the Middle East and North Africa. Its largest markets are: Nigeria, where it had 25.9 million customers at the end of March this year: South Africa (17.4 million); and Iran (16 million). In 2008 MTN generated revenues of 102.5 billion South African Rand ($12.2 billion).

A combined Bharti Airtel/MTN would also be able to benefit from the international reach of Singapore Telecommunications Ltd. (SingTel) (OTC: SGTJY), which currently holds a 30.4 percent stake in Bharti Airtel. In addition to its strong domestic business, SingTel owns Australian carrier SingTel Optus Pty. Ltd. and holds significant stakes in carriers in Bangladesh, Indonesia, Pakistan, Thailand, and the Philippines. (See SingTel Group Hits 249M Subs.)

Analysts believe the proposed deal between Bharti and MTN, which involves the issuance of new stock, would cut SingTel's stake in Airtel to less than 20 percent. See this Bloomberg report for more details.

— Ray Le Maistre, International News Editor, Light Reading

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