Cross-border corporate deals generally run into problems. However, and as two big acquisitions of the recent past?LN Mittal acquiring the Luxembourg-based Arcelor and Tata Steel acquiring Anglo-Dutch steel manufacturer Corus?show, surmounting those problems is not difficult. So, how does one assess, in the context of the Bharti-MTN negotiations, the sudden, surprise demand by the South African government that India allow dual listing?
The demand for dual listing, meaning shares of the two companies are traded on the stock exchanges of the two countries as equity shares as opposed to GDRs, is certainly surprising. This requires a stream of changes: switching to full capital account convertibility, amending the Foreign Exchange Management Act and approvals from RBI and Sebi. Changes like these, even if agreed to, take time. That kind of time is not available to either Bharti or MTN. Also, think about this: Bharti chairman & managing director Sunil Mittal and MTN chief Phuthuma Nhleko run huge companies. One would assume that they would know dual listing is a near-impossibility, given the time frame.
Therefore, the question: is the deal being derailed or is there hope for it? Bharti-MTN history offers some clues. When the two companies entered into negotiations last year, Bharti was looking at acquiring MTN and banks were willing to fund it to the extent of $60 billion. The deal could not materialise since South Africa?s national pride became a factor. MTN did not want to become part of Bharti; instead, it asked the latter to become its subsidiary, something Mittal didn?t want.
A year later, when the two returned to the negotiating table, they were wiser. The structure of the deal, as shared with the media so far, doesn?t speak about who acquires whom?it has simply been put across as coming together of two telecom majors. Dual listing or not, the two sides have taken care that their independent identities and autonomy are maintained. For instance, the two companies would continue to be listed in their respective stock exchanges, the deal would take place through share and cash swap. Through a complex process, Bharti and its shareholders would acquire 49% stake in MTN while the latter and its shareholders would get 36% in Bharti. Separate brand names would continue, which means that the Bharti brand would be alive in India while the MTN brand will do business in South Africa.
Representatives of both companies would get seats in each other?s boards. Further, while Bharti would act as a vehicle for further growth and acquisition in the neighbouring Asian regions, MTN would have the same privilege in its neighbourhood. If the two sides have taken care of the needs of each other, surely some last-minute demands like looking into the possibility of dual listing can derail the deal? Barring seamless trading in each other?s shares within their respective jurisdictions, most of the symbolic benefits accruing from dual listing, particularly ensuring the existence of MTN brand and assuaging South African pride, are being guaranteed.
Therefore, anyone thinking that the South African government?s demand on dual listing and the categorical rejection by the Indian side would ensure that the deal would fall through is most likely mistaken. It is anyone?s guess whether the deal will be finalised by September 30, or the deadline will be extended once again, as it has been done twice previously. But the point is that the real issue is not about control or national pride or independent identity. It is all about price?what the institutional and minority shareholders will get out of the deal. These shareholders have in the past openly wanted Bharti to sweeten the deal. The two sides have to sort out how to address this issue. Plus, a deal of this magnitude?$23 billion in size, creating a telecom firm with over 200 million subscribers and revenues in excess of $20 billion?requires lot of stitches.
Also, obtaining regulatory clearances and ensuring that powerful lobbies, not only in India and South Africa but also in 20 more countries where MTN has operations, are dealt with suitably aren?t easy jobs, either.
The South African regulator has gone on record saying that even if the two companies are able to seal the deal by the September-end, it won?t be possible to give it the regulatory clearance before the year-end. The same would hold true for the Indian side: by the time Sebi and the CCEA give a go-ahead to the deal it could be well past January.
Whether the deal takes place or not is best left unanswered at this point. But one thing is certain: if the deal falls through, it would not be because dual listing did not materialise.
anandita.mankotia@expressindia.com
