BHARTI AIRTEL AND

MTN - THE UNSUCCESSFUL

DEAL

Indian Telecom Sector

• Fastest Growing Sector – CAGR 22% (2002-07)

• Second Largest Telecom Market

• Total mobile services revenue in India is projected to grow at a compound annual growth rate (CAGR) of 12.5 percent during 2009-2013

• The telecom subscriber base is expected to cross 770 million connections by 2013, growing at a CAGR of 14.3 percent from 452 million in 2009

Revenues of Indian Telecom Industry: 2002–07 (USD billion)

9 10 1115

20

43

0

10

20

30

40

50

2002-03 2003-04 2004-05 2005-06 2006-07 ….. …. 2009-10

Rev

enue

s (U

SD b

illion

)

Group Company wise % market share - Aug'2009

Sl. No. Name of Company Total Sub Figures % Market Share

1 Bharti Airtel 10,79,96,533 32.19%

2 Vodafone Essar 8,08,74,460 24.11%

3 BSNL 5,20,56,417 15.52%

4 IDEA 5,00,58,471 14.92%

5 Aircel 2,44,15,514 7.28%

6 Reliance Telecom 1,32,81,225 3.96%

8 MTNL 43,52,781 1.30%

9 Loop Mobile 24,17,446 0.72%

  All India 33,54,52,847 100.00%

Bharti Airtel

• Established : July 07, 1995, as a Public Ltd. Company.

• Business Description : Provides Mobile, Telemedia services(fixed line) and enterprise services(carriers & service to corporates)

• Largest Private Integrated Telecom Company in India

• 3rd Largest Wireless Operator in the World and Largest & Fastest Growing Wireless Operator in India

• Largest Telecom Company listed on Indian Stock Exchange

Performance till date

• Bharti Airtel has enjoyed an excellent run ever since the telecom sector opened.

• It has managed to hold on to its leadership position inspite of the presence of other players with deep pockets – Ambani’s, Tata’s, Birla’s and Vodafone.

• Has coped well with regulatory changes.

• Continues to attract and delight customers.

Market share of different GSM operators in terms of subscriber base as on 31st March 2009

FUTURE STRATEGIES

• Translate its expertise in Indian markets to other emerging economies.

• This could call for acquisitions globally.

• To explore international expansion opportunities that are consistent with its vision and bring value to its shareholders

• Indian market inspite of being the worlds largest is still not matured. Opportunities abound in the hinterland which must be exploited.

THE VISION OF EXPANSION LED TO

TALKS OF ACQUISITION OF SOUTH AFRICAN

TELECOM GIANT MTN

Why MTN?? ??• M-Cell incorporated MTN in South Africa Launched in 1994

• Is a leading provider of communication services, offering cellular network access and business solutions

• Is a multinational telecommunications provider

• Core operations in 24 countries in Africa and the Middle East

• Presence in key markets such as Nigeria, Ghana, Cameroon, Uganda etc.

• Regardless of recession at the end of December 2008, growth expanded by 48% to 90,7 million recorded subscribers

• Group subscribers up 14% to 103,2 million from December 2008

• Listed in South Africa on the Johannesburg Securities Exchange (JSE) under the Industrial – Telecommunications sector

MTN OPERATES IN THESE COUNTRIES

TALKS BEGAN IN MAY 2008 WITH….• MTN asked for $50 billion, Bharti was willing to go up to

$45 billion

• Bharti offered the chairmanship of the post-deal entity to Matamela Cyril Ramaphosa, the non-executive chairman of MTN

• Bharti offered 70 per cent stock and 30 per cent cash, MTN's preferred ratio was 50-50.

• Bharti offered 170-175 rand per share to MTN shareholders, But four of MTN's largest shareholders wanted at least 180 rand per share

Structure of the Deal entered in new Phase…..

• Bharti looked to acquire 51 percent stake in MTN while MTN wanted Bharti to buy out the 100 percent stake

• Bharti had arranged funds through debt for buying about 51 percent

• 100% stake was not possible as the net profit of MTN stands at $1.4 billion, which would not have been enough to service the debt that is required to complete the deal.

• As per Broad-Based Black Economic Empowerment regulations, 20 percent of the ownership of a company operating in South Africa needs to be with the black people.

• But, for this the merged company needs to get itself listed in the South African stock market which was a long and complex process

• Crossing the limit of FDI was also a concern for Bharti Airtel

THESE CONTRADICTIONS CALLED OFF THE MUCH HYPED DEAL BETWEEN

THE TWO TELECOM GIANTS

If the deal was through it....

• Would create the world's sixth largest mobile operator, boasting over 130 million subscribers in more than 24 countries

• This transaction would have been the single largest FDI into South Africa and one of the largest outbound FDIs from India

• India’s biggest Cross-border deal, almost thrice the size of Tata Steel’s $13 billion buy of Corus in 2006

• New and bigger market for Airtel to explore other than India and Sri lanka

RCOM, MTN MERGER TALKS STARTS SOON AFTER FAILURE OF BHARTI-MTN DEAL

The Unsuccessful deal..

• Anil Ambani group company RCOM started discussions for a possible tie up with MTN

• Agreed on a 35:100 swap formula i.e. RCom shareholders will get 35 shares of the merged entity for every 100 RCom shares they hold.

• The merged entity would be valued at an estimated $36 billion, with revenues of over $14 billion and an operating profit of nearly $6 billion with over 100 million customers.

• But as per the family settlement signed in 2005 RCom may have to be offered to Mukesh before being sold to anyone else

• The deal was called off due to certain regulatory issues as per the officials of both the companies

Bharti, MTN Re-Engage in Merger Talks On May26,2009• As per the proposed structure, Bharti would have

acquired 49% shareholding in MTN

• In turn MTN and its shareholders would acquire about 36% economic interest in Bharti.

• As per the provisions of the Takeover Code of SEBI Bharti cannot acquire any voting rights through the GDR/ADR route

• The South African government demanded dual listing of MTN in order to protect the character of MTN as South African entity

• India Denied MTN for dual listing

• The deal was again called off

• If we go by the sources the deal fell through because of South Africa's political compulsions

Why India said no to dual listing??

• In India dual listing is not permitted under SEMA and the Company law

• Would have affected India’s foreign direct investment policy

• Would have led to huge tax losses to the government

• Would have weakened the oversight of market regulator SEBI as it would not be able to monitor overseas stock exchanges

• Structure would have led to an export of capital market

• It also had risks of multi-currency settlement infrastructure

Concept of Parallel listing

• In a latest development, the South African treasury insisted on a parallel listing via the trust route.

• Such parallel listing would see two trusts being listed, one in India and one in South Africa.

• Both trusts would mirror a share swap deal.

• Such parallel listing would have been compliant with existing Indian laws

• Capital account convertibility would not arise.

Conclusion

• The deal appeared to offer growth as well as scale to both operators

• MTN offered Bharti more growth options than the other way round

• Average revenue per user for Bharti($11) is quiet less than MTN($18)

• Big shareholders, along with Treasury and the General realised that global depositary receipts (GDRs) are pretty worthless to South Africans.

• The convertibility of the rupee in India was the main obstacle

• Indian government is not willing to change laws for a single company