Almost exactly a year after merger talks fell through, leading Indian telco Bharti Airtel and South Africa based MTN said they were renewing efforts to forge a strategic partnership. The deal being pursued, could potentially create a telco that will rank in the top 5 globally, with more than 200 million customers and $20 billion in annual revenues. This time around, however, it’s going to be a multiple step deal with the intention of completing a full merger in the future, as opposed to last year’s efforts, where a full merger was explored in the first round itself. MTN has significant interests in African and west Asian markets.
Bharti Airtel will buy a 49% shareholding in MTN, a company with better ARPUs (average revenue per user) and Ebitda levels than itself, and MTN and its shareholders will acquire a 36% economic interest in Bharti, of which 25% will be held by MTN and 11% by MTN shareholders.
Overall, the market seems to have given a thumbs up to the deal being pursued. At the time of writing, Bharti scrip was trading 0.25% up from its previous closing, at Rs860.
“There will be a net cash outflow of $4 billion from Bharti and then a 36% equity dilution. According to our assumptions, earnings would be diluted by 5-6% than expected for the first year,” said Nishna Biyani, telecom analyst at Prabhudas Lilladher, a Mumbai-based brokerage. “Overall, it’s a positive deal for sure, but it’s hard to say what kind of repurcussions lie ahead, as the Bharti brand may replace MTN in some 20 countries. Bharti is entering several complex geographies,” he added.
“The potential transaction, when completed, would be expected to create value for Bharti shareholders due to, among others, synergistic benefits and furthe diversification of Bharti income streams into the fast growing and relatively underpenetrated African and Middle Eastern markets,” Airtel said in a release.