Sept 28th - Bharti, MTN Near Compromise

By AMOL SHARMA

Indian and South African officials were working toward a compromise that would allow a $24 billion deal between two of their nation's cellphone giants to proceed, people familiar with the situation said.

India's Bharti Airtel Ltd. and South Africa's MTN Group Ltd. have essentially agreed on an arrangement in which each would take a large stake in the other and eventually merge to create the world's third-largest wireless operator by subscribers. But the deal is now largely in the hands of political negotiators as a Wednesday deadline for exclusive discussions between the parties nears.

Reuters

Bharti Airtel and MTN face similar challenges as they try to squeeze profits out of users who pay on average just a few dollars per month for service. Above, a mobile phone customer in India this month.

South African Treasury officials visited their Indian counterparts late last week to press for a structure that would allow the companies to maintain separate sets of shareholders and still combine cash flows and operations, rather than a traditional merger, the people familiar with the situation say. But such a "dual-listing" structure would require significant changes to Indian corporate law, which wouldn't happen quickly.

The countries' negotiators are close to reaching a compromise in which the companies could complete and announce their initial stake-swap deal in the near term while leaving the negotiations over a dual-listing structure for later, the people said.

MTN and South Africa would want a firm commitment from India that the country plans to make any necessary legal changes down the road to ensure the two companies can formally join forces, the people said.

Indian Prime Minister Manmohan Singh said on the sidelines of the G20 Summit in Pittsburgh that he supports the deal. A spokesman for India's Finance Ministry had no immediate comment.

Bharti and MTN declined to comment on the status of the deal negotiations. The companies have already twice extended their talks, and it is possible they could do so for a third time, the people familiar with the situation said. Regulators in both countries would have to approve any deal.

A combined Bharti-MTN would have more than $20 billion in revenue and over 200 million customers, making it the third-largest wireless operator in the world behind China Mobile and the U.K.'s Vodafone Group PLC. The companies are each growing rapidly -- adding millions of new customers per quarter -- and face similar challenges as they try to squeeze profits out of users who pay just a few dollars per month for service, on average.

India's securities regulator last week dealt what seemed like a significant blow to the Bharti-MTN deal when it announced rule changes that would require companies purchasing more than 15% of an Indian firm -- whether through direct shares or global depositary receipts -- to make an open offer for an additional 20%.

The original deal the companies agreed to, which would give MTN shareholders a 36% interest in Bharti, would trigger that regulation. But the people familiar with the situation said the companies have found ways to restructure the transaction so MTN won't be required to purchase a larger stake.

Bharti is also likely to assuage South African concerns about retaining the national character of MTN after a merger by agreeing to keep top MTN management, including Chief Executive P.F. Nhleko, on board, the people said.

South Africa has shown it is open to large cross border deals. Earlier this year, the U.K.'s Vodafone took a controlling stake in Vodacom, another large South African wireless carrier. But having sanctioned the sale of one national champion to a foreign buyer, South African officials are sensitive about another one in the same sector changing hands, the people familiar with the discussions say.

—Robb Stewart contributed to this article.

Write to Amol Sharma at amol.sharma@wsj.com

ma@wsj.com

Printed in The Wall Street Journal, page B3

Source : http://online.wsj.com/article/SB125407120709044251.html