MTN Begins Merger Talks With Reliance

28th May 2008

Shares of MTN Group Limited, Africa’s largest mobile-phone company, fell the most in four years in Johannesburg after business combination negotiations with India’s Bharti Airtel Limited failed and merger talks started with Reliance Communications Limited instead.

MTN lost as much as 7.6 per cent, the biggest slide since May 2004. Bharti said on Sunday that it ended talks with MTN after failing to overcome differences over ownership and management, Bloomberg News reported on Monday.

Johannesburg-based MTN and Mumbai-based Reliance, India’s second-biggest wireless provider, said in separate statements on Monday that they had started exclusive talks that could last for up to 45 days.
Any agreement will depend on whether Reliance Chairman, Anil Ambani, and MTN Chief Executive Officer, Phutuma Nhleko, can agree on control of an operator with more than 114 million subscribers stretching from the Cape of Good Hope to the Himalayas, combined profit of about $2.6bn and a market value of $65bn. Their markets have a total population of 1.7 billion people.

“It’s become clear from the Bharti statement at the weekend that MTN is more of the aggressor, the acquisitor, than was previously thought to be the case,’’ Pallavi Ambekar, an analyst at Coronation Fund Managers Limited. said from Cape Town on Monday. MTN is “clearly looking to expand its footprint,” she said.

Ambani is the world’s sixth-richest man with a personal fortune of $42bn, according to Forbes magazine.
His wealth almost tripled in the past year as shares of his infrastructure, finance and media companies surged and his power company completed India’s biggest initial share sale. MTN dropped as much as 11.89 rand to 145.11 rand. The stock traded at 148 rand in afternoon trading in Johannesburg, giving the company a market value of 276.1 billion rand ($35.9bn). Reliance declined five per cent to close at 542.95 rupees in Mumbai, valuing the company at $26.2bn.

Reliance began talks to buy a majority stake in MTN, the Business Standard reported on its Web site on Sunday, citing people it did not identify. “Reliance may be one company that could possibly do it,’’ Apurva Shah, head of research at Prabhudas Lilladher Pvt. in Mumbai, said after Bharti’s May 24 announcement. “If it was tough for Bharti, it will be tough for other Indian companies.’’

Any investment by Reliance will be in addition to the $6.5bn it’s spending this year to build a second wireless network and increase coverage. India added a record 10.2 million subscribers in March and surpassed the United States in April as the world’s largest mobile-phone market after China.
Gaurav Wahi, a Reliance Communications spokesman, declined to specify which company would control the combined entity in a telephone interview from Mumbai on Monday.

Bharti said it ended the talks after MTN presented a new structure in which Bharti Airtel would become a subsidiary of the South African company. Billionaire Chairman, Sunil Mittal and Singapore Telecommunications. would have had to exchange their majority stake in Bharti Airtel for a controlling stake in MTN, according to the structure, Bharti said.

Bharti rose 3.1 per cent to 863.45 rupees, valuing the company at $38.4bn. The end of the talks is “positive for Bharti’s share price as this lifts the cloud of uncertainty that was hanging over it,’’ Shah at Prabhudas Lilladher said. “From a long-term perspective, it is negative” because Bharti would have benefited from the expansion in its operations, he said.

Nhleko has driven MTN’s expansion north from South Africa into 21 countries throughout the continent and the Middle East, covering a region with a combined population of more than 500 million people. MTN expects subscriber numbers to rise 36 per cent to about 83.4 million this year in markets including Nigeria and Iran from 61.4 million last year. “The sense I’m getting is that they’re looking at buying Reliance,’’ Sisa Rafuza, an analyst at Metropolitan Asset Managers said from Cape Town. “India is a good starting point. It’s an emerging market and that’s where the growth is.’’

In November, MTN broke off talks with Telkom South Africa, Africa’s biggest fixed-line telephone company, over the acquisition of Telkom’s fixed-line business. In July 2006 MTN bought Investcom LLC for $5.5bn.

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