China-Africa: India’s Bharti and South Africa’s MTN Seek Merger, Threaten China Mobile
By: Matthew W. Sharp
After turning down advances from China Mobile (NYSE: CHL) earlier in the year, MTN (OTC: MTNOY) revived merger talks with India’s Bharti Airtel (BOM: 532454). If the deal goes through, the resulting telecom giant would intensely rival China Mobile’s expansion initiatives in emerging markets.
According to a Reuters report dated 25 May 2009, Bharti and MTN are mulling an initial deal worth over $23 billion, under which Bharti would pay cash and shares to end up with 49 percent of MTN, after MTN pays cash and stock for an effective 36 percent stake in the Indian firm. Ideally, trading equity stakes would eventually result in a total merger. By combining India’s largest mobile operator with MTN’s networks across 21 African and Middle Eastern markets, the merger would create the world’s third largest cell phone group by subscribers behind China Mobile and Vodafone (NYSE: VOD). The new firm would have 200 million users. Annual sales of $20 billion, however, would be dwarfed by both larger rivals, with China Mobile at $60 billion and Vodafone at $65 billion.
Trading equity stakes would give both firms exposure to new emerging mobile markets, while a full merger would yield cost savings, allow for technology sharing, and provide the financial muscle for more expansion, analysts say. And that expansion could be right in China Mobile’s backyard.
As China’s urban and rural mobile markets become rapidly saturated, the largest mobile operator in the world has its eyes set on emerging markets in the Middle East, Afghanistan, Southeast Asia, and Africa - locations where the Bharti-MTN giant would be well-positioned to grow. Indeed, MTN already operates in virtually untapped markets such as Afghanistan and Sudan, as well as throughout the rest of Africa, where some analysts believe users could almost double to 700 million by 2013.
The report did not hesitate to point out potential barriers to the deal, however:
MTN has been eyeing a big deal for some time and held failed talks last year with both Bharti and rival Reliance Communications. The Bharti talks collapsed when the South African firm proposed a new structure that would have seen Bharti become an MTN unit. [...] A full merger would need government and regulatory approval. South Africa’s powerful trade union COSATU, which has clout with new President Jacob Zuma and almost derailed Vodafone’s takeover of MTN rival Vodacom this month, said there were “worrying aspects” of the deal and it was looking at it closely.
(digitaleastasia.com)
Tags: South Africa