Early on Monday morning, India’s leading telecom company Bharti Airtel announced it had renewed its effort for a significant partnership with MTN Group Limited and is exploring a potential transaction whereby, pursuant to a scheme of arrangement, Bharti would acquire a 49% shareholding in MTN and, in turn, MTN and its shareholders would acquire an approximate 36% economic interest in Bharti, of which 25% would be held by MTN with the remainder held directly by MTN shareholders. Bharti and MTN have agreed to discuss the potential transaction exclusively with one another until July 31, 2009.

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Market experts said the deal, from whatever details were available, looked like a good one. Bhavesh Gandhi of India Infoline said Bharti was the first company from the top-three Indian telecom companies to first move to acquire a company abroad. “However, concerns on the topline and return on capital both would weigh on the share price because of the acquiring scale — Bharti has a lot of scale with almost 100 million subscribers,” he said. “Also, MTN has operations in Sudan and lace w:st="on">Iranlace> so how the legal framework comes up remains to be seen.”

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Rashesh Shah, CMD and CEO of Edelweiss Capital, said deals that were carried out during bad markets traditionally turned out well. “Also it seem to be like a swap deal so I do not think they are going to ending up using a lot of cash. They also said they are going to go towards a full-blown integration and merger of the two companies. This will take Bharti international,” he said. “lace w:st="on">Africalace> is still a growth market. India will grow for the next couple of years and then should start stagnating while a lot of people believe that Africa will grow for another five-seven years,” Shah said, adding that the deal was better than what the two companies had attempted last year.>>
“I don’t think the shareholders will worry about the dilution because they are getting a fairly good company and along with that they also get future growth,” Shah said. “If I have to worry about one thing, it would be how efficient and smooth the integration will be because this will be a large complex deal with all the government approvals required but if the integration happens well, it is a very good deal for Bharti shareholders.”Advertisement


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“In cash terms Bharti would obviously get USD 2.9 billion cash from MTN but at the same time it will have to pay almost USD 7 billion cash to MTN shareholders. So net-net Bharti will have to give out cash of almost USD 4 billion. So that would require some sort of borrowing on Bharti’s part,” Sanjay Chawla of Anand Rathi Securities said. “Also, Bharti is turning free cash flow positive from FY10 onwards generating almost USD 800 million of cash and secondly, Bharti would also get proportionate dividends from MTN. So whatever debt it takes on the balance sheet, it can be paid down fairly well maybe in the next two-three years.”