47019437 airtel mtn merger failure

7/22/2019 47019437 Airtel MTN Merger Failure

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AIRTEL-MTN

MERGER

FAILURE


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EXECUTIVE SUMMARY

Companies involved:

Bharti Enterprises Limited: leading Indian telecomplayer

MTN: leading African telecom player The deal, had it gone through, would have been

the biggest deal involving an Indian player

Two attempts at merger by Bharti and MTN

First in May 2008

Second in May 2009

Deal size: approximately USD 23 billion


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ABOUT BHARTI AIRTEL

Established in 1985

First basic phone telephone service provider in India

Largest cellular service provider in India, with more than121 million subscribers as of January 2010

World's third-largest, single-country mobile operatorbehind China Mobile and China Unicom and sixth-largestintegrated telecom operator

Deployed around 23,000 km of optical fibre cablesacross the country

Provides telephone services and broadband Internetaccess (DSL) in top 95 cities in India


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BUSINESS OF BHARTI AIRTEL

Established a submarine cable landing station at Chennai,which connects the submarine cable connecting Chennaiand Singapore.

The businesses at Bharti Airtel have been structured intothree individual strategic business units (SBUs)

- Mobile services

- Broadband

- Telephone services(B&T) & enterprise services

The mobile service group provides GSM mobile servicesacross India in 23 telecom circles


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NET SALES OF MAJOR INDIAN TELECOM

PLAYERS

25,761.11

14,792.05

6,719.99

4,722.52

3,283.30

1,707.19957.85

0.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

Bharti Airtel Reliance Comm Idea Cellular MTNL Tata Comm TataTeleservice Spice Comm


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MTN GROUP - INTRODUCTION

South Africa-based multinational mobile telecommunicationscompany

Operates in 21 countries in Africa and the Middle East

President and CEO: Phuthuma Nhleko.

MTN Group recorded a 40% increase in revenue to 12.85 bn USDfrom 2007

Sponsor of the 2010 FIFA World Cup to be held in South Africa

MTN enjoys a dominant market share across its countries ofoperations, being among the top operators in most of its markets.

MTN Group divides its operations into three major regions:

South & East Africa (SEA)

West and Central Africa (WECA)

Middle East and North Africa (MENA)

Majority of its subscribers, revenues and profits comes from theWECA re ion


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BHARTI-MTN DEAL (2008)

Bharti approached MTN in early May 2008

A proposed takeover from Bharti worth $20bn for a 51% stake in MTN

Combined entity would have been the sixthlargest mobile operator having subscribers in25 countries

Access for Bharti to the unexplored and stillemerging African market


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WHY DEAL COULDNT GET THROUGH?

MTN proposed a different deal with Bharti asits subsidiary

Controlling stake would still have been withBharti Enterprises

Bharti was reluctant to concede control toMTN

Would have been against Bhartisvision of aglobal Indian telecom giant


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RCOM TAKES THE BATON

Bhartisfailure gives RCom a chance

Enters into a 45-day exclusivity agreement

RIL steps in and denies RCom the mergerRIL uses first right of refusal to change the

control structure in any of ADAG companies.


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ABOUT THE TRANSACTION

Second attempt initiated in May 2009

Deal Size: USD24 billion

USD 10 billion in cash

USD 14 billion in shares Investment Bankers

MTN: Bank of America Merrill Lynch and Deutsche Bank

Bharti Airtel: Standard Chartered and Barclays

Talks called off in October 2009 Investment Bankers lose opportunity to make USD 48

million


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STOCK MOVEMENT - BHARTI

250

300

350

400

450

500

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

Bharti AirtelFirst attemptat merger

Secondattempt at

merger

Talks failagain


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STOCK MOVEMENT - MTN

First attemptat merger

Secondattempt at

merger

Talks fail

again


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CHALLENGES BEFORE THE DEAL

Arranging cash for financing the deal.

Payments for 3-G spectrum.

Shareholders concern regarding dilution ofequity.


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MANAGEMENTS PERSPECTIVE

Additional debt is not an issue as MTNs

balance sheet is strong with low debt.

Company has over US $2.1bn on its books as

cash and short term investments. Standard chartered, SBI has shown interest in

funding the current deal.

Last year, Bharti had received expressions ofsupport from 12 bankers across the globe toraise funds of around $60 billion to buy outMTN.


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Why Bharti was keen on the deal

It beats the US telecom giants

Become MTNs largest shareholder

Gets access to emerging markets

Gets access to 21 nations


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WHY THE TALKS FAILED?

South African government and MTN wanteddual-listing of the merged entity Dual listing did not exist in India and required

changes in Securities & Exchange Board (SEBI)Guidelines

South African government was initially againstthe merger as it wanted to preserve the African

origin of the company The deal breaker was when after 2 months of

lobbying, SEBI did not allow dual-listing of themerged entity


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THANK

YOU

47019437 airtel mtn merger failure

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