Airtel-MTN

merger


failure
Executive Summary
 Companies involved:
 Bharti Enterprises Limited: leading Indian
telecom player
 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

About Bharti Airtel
 Established in 1985
 First basic phone telephone service provider in
India
 Largest cellular service provider in India, with more
than 121 million subscribers as of January
2010
 World's third-largest, single-country mobile
operator behind China Mobile and China Unicom
and sixth-largest integrated telecom operator
 Deployed around 23,000 km of optical fibre
cables across the country
 Provides telephone services and broadband
Internet access (DSL) in top 95 cities in India

Business of Bharti Airtel
 Established a submarine cable landing station at
Chennai, which connects the submarine cable
connecting Chennai and Singapore.
 The businesses at Bharti Airtelhave been structured
into three individual strategic business units (SBU’s)
 - Mobile services
 - Broadband
 - Telephone services(B&T) & enterprise services
 The mobile service group provides GSM mobile
services across India in 23 telecom circles

4
Net Sales of major Indian telecom players
MTN Group - Introduction
 South Africa-based multinational mobile telecommunications
company
 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
USD from 2007
 Sponsor of the 2010 FIFA World Cup to be held in South Africa
 MTN enjoys a dominant market share across its countries of
operations, 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

Bharti-MTN deal (2008)
 Bharti approached MTN in early May
2008
 A proposed takeover from Bharti worth
$20 bn for a 51% stake in MTN
 Combined entity would have been the
sixth largest mobile operator having
subscribers in 25 countries
 Access for Bharti to the unexplored and
still emerging African market
 7
Why deal couldn’t get through?
 MTN proposed a different deal with
Bharti as its subsidiary
 Controlling stake would still have been
with Bharti Enterprises
 Bharti was reluctant to concede control
to MTN
 Would have been against Bharti’s vision
of a global Indian telecom giant
RCom takes the baton
 Bharti’s failure gives RCom a chance
 Enters into a 45-day exclusivity
agreement
 RIL steps in and denies RCom the
merger
 RIL uses first right of refusal to change
the control structure in any of ADAG
companies.



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

 250
300
350
400
450
500
r -0
a
M 8
r -0
p
A 8
y -0
a
M 8
n -0
Ju 8
l -0
Ju 8

First
A
g -0
u 8

merger
attempt at
p -0
e
S 8
t -0
c
O 8
v -0
o
N 8
c -0
e
D 8
n -0
Ja 9
b -0
e
F 9
r -0
a
M 9
r -0
p
A 9
Bharti Airtel

y -0
a
M 9
n -0
Ju 9
l -0
Ju 9
A
g -0
u 9
p -0
e
S 9
Stock Movement - Bharti

merger
Second

t -0
c
O 9
attempt at

v -0
o
N 9
c -0
e
D 9
n -1
Ja 0
b -1
e
F 0
again

r -1
a
M 0
Talks fail

11
Stock Movement - MTN

First
attempt at
merger Second
attempt atTalks fail
merger again

12
Challenges before the deal

 Arranging cash for financing the deal.

 Payments for 3-G spectrum.

 Shareholder’s concern regarding

dilution of equity.


13
Management’s perspective

 Additional debt is not an issue as MTN’s

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
of support from 12 bankers across the
globe to raise funds of around $60 billion
to buy out MTN.
 14
 Why Bharti was keen on the
deal
ØIt beats the US telecom giants
Ø
ØBecome MTN’s largest shareholder
Ø
ØGets access to emerging markets

ØGets access to 21 nations

15
Why the talks failed?
 South African government and MTN wanted
dual-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
against the 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 the merged entity
16
 Thank
You