The high-profile M&A talks between operators Bharti Airtel and MTN Group for a $23 billion merger deal have been dismissed yet again. Airtel informed the BSE that talks would be broken off when the exclusivity period ended yesterday and gave the reason as the failure to obtain a necessary approval by the South African government.
This is the second time that a merger between the two giants has been called off – last year, Reliance Communications also held discussions on a potential merger with MTN. Airtel has left the door open for future talks.
Our Take
That the deal did not go through was quite a surprise, since we expected talks to be extended further. We didn’t think the deal was worth going through with, since a merger between Bharti and MTN would have created an elephant of sorts. Though they may be seen as equals, keep in mind that MTN operates in 21 countries, and has 21 governments and regulators to deal with: a merger between the two large companies would have been not just a case of complex structuring, but also complicated management: in turn, it could have ended up slowing down decision making in an increasingly competitive Indian market.
In India, Airtel needs to focus on the high end subscriber market: the high ARPU, post-paid subscribers account for a significantly large chuck of telecom operator revenues, and given Airtel’s track record with customer service, we think they’re likely to benefit most from mobile number portability – maybe not in terms of market-share, but in terms of revenue market-share. To retain its position as a premium player in India, and to drive incremental usage among post-paid subscribers, Airtel will now have the resources to bid for the 3G spectrum, instead of diverting funds and management bandwidth in managing a complex merger arrangement.
Bharti Airtel’s statement:
This refers to our discussions with MTN Group Limited (“MTN”). Bharti and MTN have decided to disengage from their discussions when the exclusivity period ends on September 30, 2009.
The alliance planned between Bharti and MTN was a vision based on solid fundamentals, which had the potential of creating an emerging markets telecom giant and the third largest telecom company in the world. Substantial synergies could have been captured with this proposed transaction.
The broad structure being discussed by the two sides had taken into account the sensibilities and sensitivities of both companies and both their countries. Bharti and MTN are national champions and the proposed deal structure took into account their leadership in their respective geographies to ensure continuity of business – including listing, tax residencies, management, brand etc. This transaction would have been the single largest Foreign Direct Investment into South Africa and one of the largest outbound FDIs from India. The deal would have been a significant step in promoting South-South cooperation – a vision of the two countries.
This structure needed an approval from the government of South Africa, which has expressed its inability to accept it in the current form. In view of this, both companies have taken the decision to disengage from discussion.
Bharti has enjoyed its engagement with the MTN management and its Board; and wishes them continued success. We hope the South African government will review its position in the future and allow both companies an opportunity to re-engage.
Bharti is grateful to the various Indian government authorities, in particular the Minister of Finance, the Minister of Commerce and Industry and the Minister of Corporate Affairs. We express our profound gratitude to the Hon’ble Prime Minister of India for his strong support to what could have been a transformational partnership.
Bharti will continue to explore international expansion opportunities that are consistent with its vision and bring value to its shareholders.
Related
– Bharti Airtel & MTN Extend Talks Till August 31st
– Airtel & MTN Renew Merger Talks: What Has Changed?
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3 Comments until now.
Do you guys have absolutely any sense of business logistics and nitty gritties involved in deals of this magnitude when you report matters or is it off business channels and newspapers (or competition canteen talk perhaps) and you decide which way the wind is blowing and report accordingly? The comment about you not expecting the deal to go through due to 21 country regulatory matters is surprising. By that logic, any company willing to go through an international expansion should not do so because, well, regulatory matters will need to be addressed. Is that your insight? Is that the reason why you think the deal should not have gone through and money & resources could have been better managed because 3G spectrum matter is around the corner? Seriously guys, register amateurtelecomgossip.com as the domain instead. Bharti Airtel is an incredible company and if it's a loss it's squarely MTN's. Not pretending to be the biggest fan of BA or their people, but need to call a spade a spade. Not many companies can stake a claim to half the laurels that BA has earnt in its lifetime.
You generally do a good job and this isn't meant to run you down, but I do feel your reporting needs to be more accurate and not sound like a gossip or (worse) a Google Alert equivalent, where you 'break news' a fortnight post facto.
My humble 2 cents…
ShootFromTheHip: Read again. I never said that it didn’t go through because of 21 country regulatory matters. I said it SHOULD not have gone through because of the complex, large and potentially slow-to-move entity that would have been created. The problem with such mergers is that decision making within the org takes longer and it becomes more bureaucratic since no one wants to step on anyones toes. From a Bharti Airtel shareholders point of view. The deal would have been terrible in the short and medium term, and maybe good in the long term. Agree that MTN was getting the better deal, but I still think it’s good for Airtel shareholders that it didn’t go through. That’s my *opinion*, take it, leave it, counter it, or like you did, diss it.
Nikhil: Appreciate the time you took to respond. As I said, it wasn't meant to diss you, even though my previous comments seems to point in that direction, as much as expect you to be more responsible in terms of yours reporting perhaps. You may consider it a back handed compliment, because at a level you guys do do a good job overall and have occasionally set a good example in terms of your reporting and insights into a news story.
Deals of this nature are complex and require finesse in terms of execution. Many factors lie outside of the purview of due diligence and in fact depend on X factors coming through to make a success of it. Having said that, and being acutely aware of complexities involved, let me state that the overall impression your original post left was that it was a cut and dry case of 'let's avoid additional trouble and go for the easy route – screw ambition'. Let us not grow our companies because we may need to get new people on board and that may screw up our culture. Let us not grow beyond our borders because the 'others' will not understand our way of working and step on our toes and our SVP's may not like it and may quit to join Voda – which incidentally owes a large part of its growth story to growing beyond its own borders. I do not want to sit here and think your post on why BA-MTN deal should not have gone through is based on the assumptions related to toes. And I genuinely do not want to think that you thought a deal of this magnitude was being done from short-medium term perspective (a fact that you seem to have admitted yourself in your response). Have feet (with toes), will run.
So there are no hard feelings – keep up the good work :). And run. Occasionally. It feels good.