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Why the MTN-Bharti Airtel deal collapsed

Rebecca Wanjiku | Oct. 1, 2009
The politics of national identity and corporate culture came into play

NAIROBI, KENYA, 30 SEPTEMBER 2009 - Wednesday's (30 Sep.) collapse of the on-again, off-again, US$23 billion deal between South Africa's MTN and India's Bharti Airtel -- which occurred after the complex proposal attracted much intervention from political leaders and unions -- had as much to do with matters of national pride and politics as anything else.

If it had gone through, the deal would have created a cellular powerhouse for emerging markets, but in the end neither India nor South Africa wanted to cede ground.

"The South African government was concerned about loss of control, outflow of currency which may be repatriated, taxation issues and the fact that the Indian government could not commit on dual listing," said Dobek Pater, senior telecom analyst at Africa Analysis.

The South African government wanted MTN to continue to be listed at the Johannesburg Stock Exchange (JSE), but Indian corporate laws do not allow dual listing. Dual listing would have required full exchange convertibility of the Indian rupee, which was not attractive to the Reserve Bank of India. South Africa favored dual listing, where shares are listed on different exchanges and allow investors an option where they want to trade.

Proponents of the dual-listing structure contended that it would have allowed the companies to maintain separate shareholders but combine cash flow and operations, maximizing resources.

The deal -- which if brought to completion would have resulted in the third-largest mobile services provider in the world, with 200 million subscribers -- was the subject of discussion between South Africa President Jacob Zuma and Indian Prime Minister Manmohan Singh on the sidelines of the recently concluded G20 economic summit in Pittsburgh.

In principle, Singh assured that Indian corporate laws would be amended to accommodate the deal. However, the reserve bank continued to express concerns about the listing rules being changed to accommodate one company. So ultimately, the Indian government could no longer give assurances with absolute confidence.

Under the terms of the proposed deal, Bharti was to acquire a 49 percent share of MTN. MTN and its shareholders would acquire an approximately 36 percent interest in Bharti, of which 25 per cent would be held by MTN with the remainder held directly by MTN shareholders.

Part of the discussion about the deal had nothing to do with finances, however, but rather the extent to which the culture of the companies will be affected.

Bharti has a more well-known brand in Asia while MTN is a pan-African and Middle East brand. There were questions whether MTN would rebrand and whether the Bharti brand would provide a competitive edge for Africa's largest mobile service provider, with a footprint in 21 African countries.

 

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