India’s telecom czar Sunil Mittal’s dreams of forging a transnational alliance with Africa’s

largest telco MTN were shattered for the second time

in less than two years with Bharti Airtel and the South African
company calling off talks a few hours before the expiry of the
September 30 deadline after the South African government
refused to soften its stance on the proposed deal structure.

“Bharti and MTN have decided to disengage from their

Bharti-MTN saga
India's leading Telecom companies
discussions when the exclusivity period ends on September 30,
2009. This (deal) structure needed an approval from the
government of South Africa, which has expressed its inability
to accept it in the current form. In view of this, both companies
have taken a decision to disengage from discussion,” Bharti
Airtel said in a statement on Wednesday evening.

ET NOW, this paper’s television channel, was the first to break the story at 7.25 pm, even ahead
of the official statement from Bharti. ( Watch )

The statement was issued in India even as the top management team of Bharti — chairman Sunil
Mittal along with top executives Manoj Kohli and Akhil Gupta — was at an offsite in Thailand.
The deal fell through, say sources, after two crucial meetings in South Africa on Wednesday —
in one of these, the key representatives of the government expressed reservations about the deal
and refused to budge from its earlier stance on dual listing of companies or DLC. Thereafter, the
MTN board met and formally called off the deal.

Mumbai, Sep. 30 (ANI): Talks over a proposed partnership between Bharti Airtel and South
Africa’s MTN have been called off, with Bharti Airtel saying that the South African government
is not ready to “accept the deal in its current form.”

In a statement issued on Wednesday, Bharti Airtel said that it says it hopes government will
“review its position in future”.

MTN says: “Information has been released in India by Bharti Airtel Limited relating to the
potential transaction between MTN and Bharti. MTN will release an announcement as soon as
possible.”

“Bharti wanted to expand their footprint globally, but that just doesn’t seem to be happening
right now. But this is not the end of the story. They probably have to look at something smaller
than MTN or some other region to enter,” Deven Choksey, CEO of Choksey Shares and
Securities, said.
“The deal being called off is a blessing in disguise for Bharti shareholders as the company would
have had to borrow a lot, and Bharti’s earnings per share would have been diluted by 5 to 8
percent,” he added.

Earlier this day, South African Communications Minister Siphiwe Nyanda said MTN Group
should remain a domestic company.

“It would be sad if we saw this entity move into the hands and management of foreign nationals.
Its management must remain South African,” he was quoted, as saying.

Earlier this month, the two companies had reportedly reached a “24 billion dollars preliminary
accord on commercial terms”.

The talks, which have been extended twice since May, expired today.

The sticking point of the deal has been the South African government’s insistence that MTN
have a dual listing. Indian law oes not currently allow for this. (ANI)

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Source: MTN-Bharti Airtel deal called off bharti airtel, blessing in disguise, dual listing, foreign
nationals, south african government

October, 01st 2009

India’s telecom czar Sunil Mittal’s dreams of forging a transnational alliance with Africa’s
largest telco MTN were shattered for the second time in less than two years with Bharti Airtel
and the South African company calling off talks a few hours before the expiry of the September
30 deadline after the South African government refused to soften its stance on the proposed deal
structure.

“Bharti and MTN have decided to disengage from their discussions when the exclusivity period
ends on September 30, 2009. This (deal) structure needed an approval from the government of
South Africa, which has expressed its inability to accept it in the current form. In view of this,
both companies have taken a decision to disengage from discussion,” Bharti Airtel said in a
statement on Wednesday evening.

ET NOW, this paper’s television channel, was the first to break the story at 7.25 pm, even ahead
of the official statement from Bharti.
The statement was issued in India even as the top management team of Bharti — chairman Sunil
Mittal along with top executives Manoj Kohli and Akhil Gupta — was at an offsite in Thailand.
The deal fell through, say sources, after two crucial meetings in South Africa on Wednesday —
in one of these, the key representatives of the government expressed reservations about the deal
and refused to budge from its earlier stance on dual listing of companies or DLC. Thereafter, the
MTN board met and formally called off the deal.

The announcement pulled down MTN’s shares by 5.5% on the Johannesburg stock Exchange
(JSE) before the South African company requested a suspension of trade in the stock for the rest
of the day. “The JSE has been requested by MTN to suspend trading in its securities until the
commencement of business on Thursday, October 1, 2009,” the JSE said in a statement.

Codenamed ‘Project Green’ by Bharti Airtel and ‘Project Saffron’ by MTN, the two companies
and their numerous advisors and bankers had worked on the transaction since the beginning of
the year. After over eight months of torturous and complex discussions, both companies reached
an agreement for a $24-billion alliance to create the world’s fourth largest telco spanning 24
countries and 200 million subscribers. But the South African government’s refusal to budge from
its demand that the Indian government amend laws to allow dual-listed companies as a precursor
to the deal sealed its fate.

Dual listing allows companies retain their separate legal identities and listings on stock
exchanges while entering into “equalisation” agreements to collectively run operations and share
profits or losses. Such arrangements are also seen protecting the national identities of companies.
ET was the first paper to flag off the issue of dual listing as a major stumbling block for the deal
in its edition dated July 31, 2009.

In the end, the politics of national pride derailed the deal as South Africa did not want MTN to
lose its independent identity. It wanted an assurance from the Indian government that it would
amend laws to allow DLCs. While Prime Minister Manmohan Singh assured South African
President Jacob Zuma that the Indian government would discuss all issues, this was evidently not
enough for the South Africans.

This also marks the seventh attempt by MTN to enter into a merger or strategic alliance with
global communication majors. The South African giant has in the past been in failed discussions
with the likes of Vodafone, China Mobile and Reliance Communications.

Pallavi Ambekar, analyst, Coronation Fund Managers, Cape Town, a shareholder in MTN, is
relieved that the deal has been called off. “We are shareholders of MTN and we are quite
positive that the deal has been called off. We felt that the deal in its initial format was quite
complicated and felt that the price being offered undervalued MTN itself. I can’t comment on
any new deal because we haven’t seen any new deal that was being presented. The deal was
complicated. Several things would have come in the way of actually concluding the deal, not
necessarily just the SA government,” she said in an exclusive chat with ET NOW soon after the
Bharti statement.

Naturally, friends and well-wishers of Sunil Mittal are disappointed. Dabur India chairman
Anand Burman, Mr Mittal’s close friend for over 20 years, castigated government officials for
derailing what would have been the country’s largest cross-border deal. “It is a bit of a setback
for Sunil. But he’s a go-getter. He will go for something bigger than MTN. It’s rather sad that
India’s best company with the largest number of subscribers and the pioneer of the low-cost
business model had to fall prey to the technicalities of some government babus somewhere,” Mr
Burman said.

Ironically, the transaction under discussion did not involve any loss of national identity for MTN.
It was a cash-cum-stock deal which would have resulted in Bharti Airtel getting a 49% stake in
MTN and the South African telco and its shareholders getting a 36% economic interest in Bharti.
But the South Africans wanted assurances for the future, which the Indian government was not in
a position to give as it said that allowing dual listing will need major amendments to key
corporate laws and cannot be done in haste.

Finance ministry officials had earlier told ET that DLCs do not figure anywhere on the
government and RBI’s radar at the moment because that implied a situation close to full capital
account convertibility, which the Indian government and RBI were unwilling to consider.

Following Bharti’s statement, the South African government said: “When companies structure
their relationships outside the current exchange control regulatory framework for such
transactions, they require the approval of the minister of finance. This was the case with the
proposed MTN-Bharti merger, which required certain exchange control and other approvals.”

Despite the South African government’s failure to approve the deal, Bharti Airtel defended the
proposed deal structure and said that ‘the broad structure being discussed by the two sides had
taken into account the sensibilities and sensitivities of both companies and both their countries’.

The Indian telco also said that since both companies were the national champions in their
respective countries, the proposed deal structure had taken into account their leadership in their
respective geographies to ensure continuity of business — including listing, tax residencies,
management, brand etc.

“This transaction would have been the single largest foreign direct investment into South Africa
and one of the largest outbound FDIs from India. The deal would have been a significant step in
promoting South-South cooperation — a vision of the two countries,” Bharti Airtel’s statement
added.

But the Indian company has not totally given up, if its statement has is anything to go by. “We
hope the South African government will review its position in the future and allow both
companies an opportunity to re-engage.” Bharti Airtel also added that it would ‘continue to
explore international expansion opportunities that are consistent with its vision and bring value
to its shareholders’.

The Indian telco even politely observed that it “enjoyed its engagement with the MTN
management and its board and wished them continued success.”
Last month, Bharti Group chairman Sunil Mittal told ET NOW that the company’s second
attempt to forge an alliance with MTN was a well thought out move. “I would not call it an
audacious move. This is our second attempt at forging a deep and meaningful alliance with
MTN. It is a very well considered move and there is a very strong rationale. Our business model
is ready to go out and that’s why I am exploring the MTN opportunity.”

Over the past month, Mr Mittal had aggressively wooed the Indian political establishment to help
Bharti clinch the deal. The Bharti Group head had met the prime minister three times and held
discussions with with finance minister Pranab Mukherjee as well as top government officials in a
number of ministries.

Bharti also indicated its gratitude to the Indian government for its support: “Bharti is grateful to
the various Indian government authorities, in particular the minister of finance, the minister of
commerce and industry and the minister of corporate affairs. We express our profound gratitude
to the honourable prime minister of India for his strong support to what could have been a
transformational partnership.”

ET comment: We need to scale the Capital wall

It was clear from the beginning that regulatory barriers would be the biggest obstacle in
consummating the Bharti-MTN deal. Looking ahead, the Indian government needs to think about
the changes in our capital account regime that will facilitate the large cross-border transactions
that Indian companies aspire to. Shares are a common currency for acquisition and Indian
companies would be shut out of overseas buyout opportunities if they are not allowed to issue
them.

While dual listing is a step towards capital account convertibility, it is not necessarily a giant
one. The Indian capital account is open for FIIs and in case of FDI. The Companies Act will also
have to be amended to take into account taxation and accounting implications for a dual-listed
company. But the risks of capital outflows may not be huge.

We probably have more money flowing out due to over and under-invoicing on the trade
account. As the government gradually opens up the capital account, issuing ordinary shares to
overseas investors ought to be on the agenda.