Bharti, MTN extend deal deadline by a month

Bharti Airtel’s statement clarified that ‘discussions may or may not lead to any transaction’.

The deadline for the $23 billion share-swap deal between Bharti Airtel and MTN, respectively India and South Africa's largest telecom operators, has been extended by a month to August 31, according to statements issued by both companies today.

Banking sources involved in the deal said the extension is principally being made to work out the final details of the agreement. Bharti Airtel’s statement also clarified that “discussions may or may not lead to any transaction”.

The announcement of the deal on May 26 followed just a year after earlier merger talks failed over issues of management control, and subsequent negotiations between MTN and Anil Ambani-controlled Reliance Communications were called off as a result of objections from Mukesh Ambani-led RIL.

Under the May 26 deal, which will create the world’s third-largest telecom company with over 200 million subscribers and over $20 billion in revenues if it goes through, Sunil Mittal-promoted Bharti will acquire a 49 per cent “economic interest” in MTN. In return, MTN will acquire 25 per cent “economic interest” for $2.9 billion and MTN shareholders will acquire another 11 per cent in Bharti Airtel.

In all, MTN and its shareholders will acquire 36 per cent in Bharti Airtel in the form of global depository receipts (GDRs) that will be listed on the Johannesburg stock exchange.

The deal will have to clear several regulatory hurdles and will also require shareholders’ endorsement in South Africa and India. For instance, rules in South Africa require 75 per cent of those present and voting to clear Bharti's entry. About 61.23 per cent of MTN’s shareholding is widely held.

Bharti, however, has the support of large MTN shareholders like the Mikati family of Lebanon, which holds 10.18 per cent, and NewShelf (through which MTN employees hold equity) with 14.87 per cent and the directors, who own 0.22 per cent.

Sources also said Indian laws do not allow a company to go for dual listing or even secondary listing on the stock exchange of another country. This could be an issue, since the two companies are looking at a merger, though not in the first phase.

The key issue that has caused the deal to be revived is the change in the FDI rules under Press Notes 2, 3 and 4 in February this year.

Under the new rules, proportionate foreign holdings through various multi-layered investment companies will not be calculated for the purpose of FDI, as long as Indians hold 51 per cent in each of these companies. Earlier, the proportionate foreign holding was calculated at every layer.

Under the new policy, Bharti has leeway to bring in 36 per cent through FDI. The new rules, however, have been opposed by the Reserve Bank of India and sections of the government.