Bharti says 'no bid'

By Damaria Senne, ITWeb senior journalist

Johannesburg, 19 May 2008

While India's Bharti Airtel and the MTN Group have confirmed they are holding discussions that could result in a transaction, Bharti has denied it has made a bid for an MTN majority shareholding.

This statement follows a number of media reports stating the Indian mobile operator is on the verge of purchasing a 51% shareholding in pan-African mobile operator MTN, at R175 ($22.63) a share. This would put the price of the stake at $16.1 billion.

Media reports also indicated the direction of the transaction would emerge this week, and would reveal whether it is a pure cash offer, cash and stock, or cash-stock-debt funding.

"The funding structure is important because it will decide how many fresh shares the acquiring company will potentially have to issue, thereby, diluting its earnings per share and price of shares," the Asian Wall Street Journal quoted an inside source.

The source also said Bharti had been talking to MTN "for quite some time" and that proposals so far include a controlling stake, a full takeover, or a share swap.

The report also indicated the chairperson's post of the proposed merged entity would go to MTN group chairman Cyril Ramaphosa, with Bharti chairman Sunil Mittal becoming deputy chairman and group CEO. MTN CEO Phuthuma Nhleko would be deputy group CEO, it said.

However, last week Bharti released a statement saying its ongoing exploratory discussions with MTN did not constitute a bid.

Bharti says it has not made a bid for MTN and there is no requirement to make one.

"The discussions being held are aimed at combining the strengths of the two leading 'emerging markets' players, and accordingly, veering towards possible structures to achieve this objective," the Indian mobile operator says in a media statement.

Bharti also says its discussions with MTN are still exploratory in nature and may, or may not, lead to any transactions.

MTN had not responded to a media enquiry by the time of publication.

Formidable team

BMI-TechKnowledge MD Dennis Smit and International Data Corporation analyst Richard Hurst say a partnership between the mobile giants would see the companies gain strategic advantage to penetrate global emerging markets.

The companies will be perfectly positioned to consolidate their markets in Africa, the Middle East and India, and consider opportunities in emerging markets such as Russia and Latin America, says Hurst.

"I think this is a similar play as SAB/Miller did in the last few years, and despite being South African, SAB is now a global player of note. MTN has this exact visionary belief and that is why this deal may be good," says Smit.

Bharti already has a stronghold in India, which is considered one of the fastest growing mobile markets in the world. MTN has presence in 21 countries in Africa and the Middle East.

Analysts have also rated both companies as strong performers in their own right, making them formidable as a tag team.

Global analyst firm Oliver Wayman's State of Communications, Media and Technology 2008 report rates Bharti Airtel as number one among the top 60 performing firms, by market size capitalisation, in the past five years. The report rates MTN as the fourth best performing firm.

MTN also stands to benefit from Bharti's lean and light-asset operations model, some media reports say.

Bharti traditionally outsources its network deployment/set-up, IT services and customer contact centres.

"The company has grown effectively by simplifying its processes and saving significantly on capital expenditure. Operating expenses as a share of the company have declined 8% annually since 2003," says Oliver Wayman.