A setback to Bharti?s business?
No. Viewed from the perspective of hard fundamentals of business and balance sheet, there?s no setback. Market response is one indicator of that. Financially, Bharti is an excellently managed company with very low levels of debt.
It has got plenty of cash flow, and in terms of its telecom network coverage, it is far ahead?by
25 million subscribers?of its nearest rival. The company is adding around 2.8 million subscribers each month. It has around 110 million subscribers. The company is posting a quarterly profit of around Rs 2,000 crore.
So the problem is…?
The problem is in terms of Bharti?s ambition. A couple of weeks before entering into negotiations with MTN, Bharti had celebrated reaching the 100-million subscriber mark, the first by an Indian telecom firm. Sunil Mittal had then given himself another 3-4 years to add another 100 million. If the deal with MTN went through, Mittal would have 100 million more subscribers in four months instead of four years! In terms of in-country (the number of subscribers in a single country) calculation, Bharti ranks as the third largest mobile operator in the world. Had Bharti-MTN happened, the company would have become the third largest operator without any prefixes. Bharti and Mittal would have conquered a peak fast and also set out for the next one faster.
Are there knock-on effects on India Inc?s ambitions for overseas company shopping?
No, if plain vanilla mergers and acquisitions are on radar. Yes, if the deal needs to create an innovative M&A model. Sunil Mittal often says that he?s interested in acquisition to replicate the Indian telecom model of low-cost, affordable tariffs elsewhere. If his talks with MTN had succeeded, his M&A model would also have been replicated by other Indian firms. So far, acquisitions have happened on a simple formula?someone wants to sell and the other party wants to buy. The Bharti-MTN deal would have heralded an era of coming together of companies, which are equals and have appetite to grow faster. MTN is an MNC in its own terms with operations in 21 countries and a total subscriber base of around 103 million. The two companies had put across a model, which was complex but if successful would surely have encouraged several others to experiment with similar structures. In the process what would have emerged was a whole new framework for synergies amongst companies that are equals but operate in different geographies.
Any other lesson for India Inc?
Tatas have made two big acquisitions abroad?Corus and JLR?and have faced cultural, financial and employee-related hurdles. They have managed to tackle this. But the key point is that these were acquisitions in developed economies where emotional attachment with companies is on wane. The same cannot be said with regard to emerging economies. The lesson from Bharti-MTN is that as India Inc looks at emerging markets, it would need to first tackle the emotional attachment part. This can be a tough political problem. Imagine the emotional fervour in India if 20 years back the Indian government had agreed to part with its 50% stake in Maruti. Part of the same issue is understanding the regulatory environment of an emerging economy. This will be as important as, if not more important than, de-leveraged balance sheets. Bharti tripped twice with MTN. Emerging economy acquisitions have acquired a special aura of difficulty.
Who can get hitched faster now, Bharti or MTN?
Bharti has a distinct advantage. Mittal?s equation with his foreign partners so far has been excellent and all of them have made money with him. MTN, on the other hand, has a history of flirtation and not making commitments, leading to sobriquets like ?a runaway bride?. The latest fiasco will make it
difficult for it to forge any kind of synergy with any other major group. A small acquisition here may be possible. But for MTN a big catch will be hard to come by.
