MTN soars on Bharti talks

Johannesburg, 06 May 2008

News that India's Bharti Airtel is in acquisitive discussions with locally-listed cellular operator MTN had opposite effects on the two companies.

The parties yesterday issued statements to shareholders advising they had entered "exploratory" discussions. These talks are "still at an early stage, are exploratory in nature and may or may not lead to any transaction", the companies said.

Local analysts have placed the likely price of MTN at around R180 per share, or approximately $44 billion. However, the Financial Times reports that insiders have indicated Bharti's interest is in acquiring 51% of the company at around R165 per share, or a total value of $20 billion.

'Unfortunate deal'

One investor analyst, who cannot be named, says the idea of a Bharti takeover is "unfortunate" and unlikely to proceed smoothly.

"What we are looking at here is a company trying to take over a slightly bigger operator. It can do this because its investment rating is slightly higher, but when you look at the companies' numbers, MTN is actually the larger operator," he notes.

The analyst points out that MTN has around seven million more subscribers and an almost equal net income and earnings before income tax, depreciation and amortisation margin. However, because Bharti has a lower tax rate, its net profits are higher.

"The other factors to be considered are how Bharti expects to finance such a deal and incorporate a company its own size into its operations. This has seen pressure brought to bear on its share price as the market mulls how smart this move really is," he comments.

While MTN today gained 10% in early morning trade, to R165, Bloomberg reports Bharti's share price lost 3.4%, to 863.3 rupees.

IDC analyst Richard Hurst agrees that integrating the two operations could be problematic.

"Operationally, the India cellular market is characterised by congestion and network issues. Locally, MTN has attempted to be proactive in keeping their network up to scratch. There's also the question of corporate cultures. You have to wonder whether this may not be a difficult deal to swallow," he notes.

A better option may be to look at a merger, says the analyst.

"To my mind, this would be a far better option. It would actually make a lot of sense. Luckily for MTN, this offer is raising its investment ratings. Even if this deal falls through, I think we are going to see a higher investment rating going forward, which means MTN will have access to more financing," he concludes.