'bharti May Bid For South Africa's Mtn'

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SINGAPORE: Bharti Airtel , India's top mobile phone firm, may bid for South African telecommunications group MTN in what would be its biggest foreign acquisition, it was reported on Friday. The newspaper quoted an unidentified person familiar with the deliberations as saying that Bharti's board members were in advanced discussions about its growth strategy, which had largely been organic to date.

The person said the board would decide whether to press ahead with a "transformational piece of M&A" and a bid for MTN was at the forefront of the ideas under consideration, although he said it was premature to say it would launch a tender offer.

The FT said Standard Chartered was advising Bharti and that Singapore Telecommunications , which owned 30.5 percent of Bharti at the end of 2007 and supported the plan, was being advised by Goldman Sachs. Sunil Bharti Mittal, Bharti's founder and chairman, told the newspaper that Thursday's board meeting was "just about our quarterly results". "Of course, we talk to people all the time and don't preclude anything. All I can tell you is how things stand today. That said, this is a competitive business environment and I do not want to be compromised by ruling things out for months."

Edited May 7, 2008 by @ksh@T

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No more small buys, Bharti wants a big global footprint

MUMBAI: Bharti Airtel, India’s largest telecom operator, has come a long way from the days of tiny acquisitions. The Sunil Mittal-led giant is now eyeing bigger and more visible companies to expand its global footprint. “I think the company is now ready to go further. Anything that is medium-to-meaningful will form a part of Airtel as and when the opportunity arises. Seychelles is very, very tiny,” Mr Mittal said at the earnings conference call after announcing the telco’s results.

Bharti’s joint MD Akhil Gupta said: “The size (of acquisition) is something we determine from time-to-time. For international acquisitions, our consideration will be that the company should be value-accretive and good for Bharti Airtel and for the shareholders.” It should not be so “tiny” that it does not attract attention, he added.

Mr Mittal said the company was in talks with bankers and others (for acquisitions), but is not in a position to share anything at the moment. Media reports on Friday said Bharti was considering a bid for South African telecom major MTN.

“We will be prompt in responding to investors as and when there is something more concrete to report,” Mr Mittal said when asked about the bid for MTN. With 68.2 million subscribers in 20 countries, MTN has a market valuation of $33 billion. The operator too denied having received any “specific proposal” from Bharti.

Mr Mittal said Airtel has built a strong position in India and is growing at a rapid pace. “The business model we have invented at Bharti needs to be transferred globally. We always remain open to opportunities outside India. Now, the company is in a position where it must have ambitions to grow beyond the Indian shores,” he said.

In Seychelles, the company operates as Telecom Seychelles in which Bharti’s partner is Emtel, the top GSM operator in Mauritius, besides some private investors. This firm offers third generation (3G) services.

Besides, a subsidiary of Bharti, Jersey Airtel, offers mobile services in Jersey (Channel Islands) over its full 2G, 3G and HSDPA enhanced network. In Sri Lanka, Airtel plans to launch 2G and 3G mobile services by February next year.

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Sunil Mittal in London to lay MTN buy plan

MUMBAI/NEW DELHI: A day after announcing his interest in taking over MTN, Bharti Airtel chairman Sunil Mittal is learnt to have gone to London to meet the South African company’s CEO Phuthuma Nhleko.

The meeting assumes significance as Mr Nhelko not only runs the largest South African operator, but also is a close confidante of MTN chairman Cyril Ramaphosa. “It’s important for Mr Mittal to explain the details of his bid and his future plans with the company,” sources close to the development told ET.

Sources said Mr Mittal’s plan for MTN would include retaining the top management of the foreign company, including its chairman intact, post acquisition.

“Bharti is eager to offer him the position of co-chairman, in case it wins the race. Mr Ramaphosa is politically well connected in Africa. His experience will help Bharti immensely if it manages to keep him,” they added.

Mr Ramaphosa is a well-known trade union leader, prominent anti-apartheid activist and a leader of the African National Congress. After apartheid was abolished, he moved over to the corporate sector.

Bharti, however, reiterated on Tuesday that talks are “exploratory” and “that it has not made any offer to acquire the whole or part of MTN... Details of any transaction will be released promptly, if and when, the parties reach agreement. As a responsible listed company, Bharti will continue to uphold the highest levels of transparency and corporate governance.”

MTN shares reached 14-year high to rand 152.01 ($20). At this price, MTN is valued at nearly $40 billion. However, MTN is worth between rand 167.62 and rand 183.74 a share, JPMorgan Chase & Co said in a note to investors on Tuesday. That’s as much as 15% more than the current price.

Bharti’s shares closed down 5.3% at Rs 846.60 as investors feared it may pay too much for MTN in case of a bidding war. UBS too estimated MTN’s enterprise value at nearly $40.6 billion, about 16% higher than its current market capitalisation of $35 billion and about 10 times MTN’s earnings before interest, tax, depreciation and amortisation of $4.1 billion.

Bharti is believed to be eyeing 51% stake in MTN, which has 68.2 million subscribers across 21 countries. However, 51% stake may not help it consolidate the cash flows of MTN, which is necessary if Bharti is making a leveraged bid, an investment banker familiar with overseas transactions said.

Traditionally, LBOs (leveraged buyout) involve the acquirer taking the target private. In this case, it is difficult to see how Bharti will do a leveraged transaction without taking 100% of the company, he added.

Also, Bharti will need to pay a premium over the current market price to MTN shareholders, which could take the price tag to $45 or $50 billion. A 100% acquisition at such a hefty price will be difficult without substantial equity support, the banker added. Media reports said Bharti had offered $21.8 per share while MTN was quoting $23.8.

“With passing time, MTN’s share is coming close to what Bharti is offering. The question is whether MTN will remain attractive beyond a price point,” Angel Broking analyst (IT and telecom) Harit Shah told ET.

According to sources, Bharti and Singtel’s first step could involve buying out the 23% stake that the Alpine Trust holds in MTN. (The Alpine Trust is owned by Newshelf 664, which is a company constituted by the MTN staff and management and also South Africa’s Makati family).

In the next step, the duo may buyout PIC, a South African government-owned pension fund, which has a 13.5% stake in MTN and is the second largest share holder in the company, sources said. Following this, Bharti may make an open offer for an additional 15% stake, which will enable it to take its shareholding to over 51%.

Back of the envelope calculations indicate that Bharti will have to fork out over $9 billion to buy the stake held by the Alpine Trust and an additional $5.4 billion to PIC at the current valuations. In such a scenario, market watchers share the view that this would result in MTN’s net debt as a percentage of market capitalisation going up to over 60% when compared to the current 3%.

Such a scenario will also result in Bharti being forced to let MTN remain listed, or relist the company. This is because, under South African laws, if any company acquires over 35% in any company, it must make a mandatory offer to the minority shareholders.

Bharti is also learnt to have received commitment of $12 billion from Standard Chartered Bank and Goldman Sachs, each having underwriten $6 billion, according to overseas media reports. They said Bharti may offer fresh shares to MTN shareholders or to institutions, or both, to organise the additional fund, which could be to the tune of $8 billion.

British telco Vodafone is also learnt to be interested in MTN. However, it has not issued any official statement expressing its interest in the telco. According to a Goldman Sachs report, telecom mergers and acquisitions in the last few years have been at an enterprise value/Ebitda value of at least 10 times.

“This leaves very little room for an upside even though the valuation differs from company to company,” said Mr Shah.

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SingTel may join Bharti Airtel in MTN bid: Analysts

NEW DELHI: Singapore's telecom giant SingTel, which holds over 30 per cent stake in Bharti Airtel, may join the Indian mobile operator as a co-buyer in the bid to acquire South Africa's MTN, analysts said.

By virtue of its 30.5 per cent stake in Bharti Airtel, SingTel would anyway have an indirect interest in MTN's buyout by the Indian firm, but there is a "reasonable probability" that the Singapore firm gets directly involved as a co-buyer, analysts at Citigroup Global Markets said in a research note to their clients.

Earlier this week, MTN and Bharti announced separately that they have initiated "exploratory discussions" for a possible acquisition of the South African firm.

"SingTel is the largest shareholder in Bharti with a 30.5 per cent stake and consequently has interest in this transaction anyway," Citigroup's Anand Ramchandran wrote in the research note.

"That said, given the size of any potential acquisition, we see a reasonable probability that SingTel gets directly involved with Bharti as a co-buyer as well," the note said.

Terming Bharti and MTN as "two equal-sized entities in market value," Citigroup said that MTN's market cap of 35 billion dollars compares with 42 billion dollar for Bharti.

"MTN's 68 million wireless subscriber base (across Africa) as of March 2008 compares with Bharti's 62 million as of the same date," it noted adding that MTN's 4.1 billion dollars in EBITDA for year ended December 2008 compares with $2.8 billion for Bharti in the same period.

If successful, the deal could catapult Bharti among the world's five largest mobile phone operators. While Bharti has so far maintained having not put in any bid as yet, a report in the British daily Financial Times said yesterday that Bharti has made an indicative bid of $19 billion for a 51 per cent stake in Africa's largest mobile firm.

Based on these figures, it would be the largest overseas buyout by any Indian company ever.

Analysts at Citigroup also noted that concerns about overpayment for the deal could reflect in the share prices of the interested acquirers, as has been the case in previous deals like Tata-Corus.

"History indicates markets worrying about overpayment and dilution first before looking at synergies and extended growth opportunities... We see deal structure, value for price and funding in any transaction as all key to immediate stock reactions," Citigroup research note said.

Brokers in Mumbai said that concerns about the funding pressure for the deal led to a fall of over five per cent in the share price of Bharti Airtel yesterday. According to the media reports, Bharti is arranging for a $12 billion of debt for its $19 billion bid.

Shares of Bharti Airtel today fell over three per cent in the afternoon trade today to Rs 821 at the Bombay Stock Exchange, on top of a 5.3 per cent fall yesterday

China, Russia may rival Bharti bid for MTN, says NYT

"A battle for the MTN Group, a leading South African telecommunications company, could come down to a clash between the world's largest and fastest-growing emerging markets," the report said, adding that Bharti is expected to face stiff competition from a Chinese rival.

The report further added that analysts and experts also do not rule out possible interest from Russia, though no bidders have yet emerged.

The report termed Johannesberg-based MTN as "highly prized" by virtue of its 70 million subscribers and presence in some of the world's fastest-growing telecom markets such as Nigeria and Iran.

"China and India have often been compared as the rest of the world adjusts to the presence of new economic powers, but rarely have representatives of the two nations competed head to head on a deal.

"Chinas government-controlled entities have invested and lent billions of dollars to African countries in recent years, while private companies in India have concentrated more on shopping outside the nations borders," it noted.

According to the report, Indian firms have executed larger number of "big deals," but in terms of value, Chinese companies have an upper hand. The report said that analysts expect MTN to attract Chinese firms like China Mobile or China Telecom, given the strong financial positions of the Chinese firms.

"So far, a Chinese-Indian showdown is purely in the minds of bankers and analysts. Representatives from the Beijing and Hong Kong offices of China Mobile said they had not heard anything yet relating to a possible bid for MTN. William Li, the Hong Kong spokesman for China Telecom, said he had also not heard of any plans for a bid," the report added.

About the possible Russian interest in the deal, the report quoted Moscow-based brokerage firm Metropol's head of research and telecommunications analyst Philip Townsend as saying that Russia's three top cellphone companies VimpelCom, Mobile TeleSystems and Megaphone were generating excess cash that they cannot invest in their saturated domestic market.

In addition to expanding into other former Soviet republics, they are pushing into countries with cold war-era ties to Russia, which would include some in Africa, it said.

There are many markets in Africa which are natural markets for Russia... They've got to find a home for their money," Townsend told the New York Times.

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Govt wishes success to Bharti-MTN deal

NEW DELHI: The government on Thursday wished the country's top mobile operator Bharti Airtel success in its pursuit to acquire South African telecom company MTN, while assuring other private companies of extending a helping hand in overseas buyouts.

Making it clear that there is no need to involve the government when private companies pursue deals among themselves, Minister of State for IT and Telecom Jyotiraditya Scindia said, "If the need arises and the companies ask for help, then the government can consider helping companies".

Scindia was replying to query if the government would back Bharti's move to acquire South African operator MTN, which has operations in 20 countries.

Earlier, the government had provided support to India- born businessmen L N Mittal during his company's takeover of Luxembourg-based steel maker Arcelor. The Indian government had lobbied with French authorities during the takeover.

Bharti Airtel chairman Sunil Mittal yesterday held talks with MTN's top management in London to workout a broad scheme of arrangement for a possible merger between the two companies.

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BHARTI ENDS MTN CALL

NEW DELHI: It turned out to be a dropped call in the end. After almost four months of discussions, Bharti Airtel called off merger talks with South Africa’s MTN on Friday night, accusing it of deviating from agreed terms and of trying to push a structure which would have resulted in the Indian company becoming a subsidiary of MTN. The South African company also wanted majority shares of Bharti Airtel held by the Bharti family and Singtel in exchange for a controlling stake in MTN. This too was unacceptable to the Indian company.

“Bharti believes that this convoluted way of getting an indirect control of the combined entity would have compromised the minority shareholders of Bharti Airtel and also would not capture the synergies of a combined entity,’’ said a company statement.

In an attempt to link the discussions with MTN to national pride, the statement adds: “Further and more importantly, Bharti’s vision of transforming itself from a home-grown Indian company to a true Indian multinational telecom giant, symbolising the pride of India, would have been severely compromised and this was completely unacceptable to Bharti.”

MTN, on its part, has promised to disclose it side of the story on Monday. “We will update our shareholders as the market opens on Monday morning,” MTN spokeswoman Nozipho January-Bardill told an international news agency.

The collapse of the merger talks means that the largest takeover attempt by an Indian company has ended in failure. ET had on May 24 reported that discussions between the two had reached a stalemate and that an announcement regarding the postponement of talks was expected shortly.

While Bharti has stated that “it wishes MTN all the best,” its unhappiness with the South African telco is evident. A successful merger would have led to the formation of the world’s sixth largest telecom company with a presence in 23 countries covering the African continent, Central and Western Asia and the Indian sub continent.

At current valuations, the Bharti-MTN would have a m- cap of over $80 billion and a subscriber base of 130 million. And while Bharti has asserted that it remains keen to expand in the global arena, it is yet to be seen whether it can succesfully target a company of MTN’s scale and with which there is an equivalent synergystic fit.

The breakdown of talks will also constitute a personal setback for Bharti Airtel chairman Sunil Mittal who was spearheading the negotiations and till a few days ago was pretty confident about the deal going through.

Discussions between Bharti and MTN are said to have begun in February and at that time a reference price of around 160 Rand per share (the then market price of MTN was less than 130 Rand) was agreed upon.

Subsequently, a number of structures were discussed and evaluated between the lead bankers on both sides. An in-principle agreement was reached on May 16 and a term sheet was initialled between the two lead bankers.