Will Bharti – MTN get lucky for a second time?

Bharti Airtel, India’s largest privately held provider of integrated telecoms solutions with over 100 million customers, has confirmed that for the second time in a year it is in talks with MTN Group, the South Africa-based mobile operator with operations in 21 countries, about a potential merger. It should be recalled that Bharti started talks to acquire MTN Group just over a year ago. However, with the global recession looming, the company’s valuations have fallen from their 2007 highs. Apart from that, both companies have surpassed the 100 million subscriber base, as well as revenue and profits. It must be noted that the deal structure has changed this time

About Bharti Telecom giant Bharti Airtel is the flagship company of Bharti Enterprises. Bharti Group has a diverse portfolio of businesses and has created global brands in the telecommunications sector. Bharti was recently incorporated as Bharti Retail Pvt. ltd as part of an MoU with Wal-Mart for the Cash & Carry business. It has successfully started an international business with the EL Rothschild Group to export fresh agricultural produce exclusively to markets in Europe and the US and has established Bharti AXA Life Insurance Company Ltd through a joint venture with AXA, the world’s leading financial protection and… Wealth management established. Airtel comes to you from Bharti Airtel Limited, India’s largest integrated and the first private telecom service provider with a presence in all 23 telecom circuits. The mobile business offers mobile and fixed line services using GSM technology in 23 telecom circuits, while the Airtel Telemedia Services business offers broadband and telephony services in 95 cities and recently launched India’s premier direct-to-home (DTH) service, Airtel Digital TV, introduced.

About MTN: The MTN Group is a South Africa-based multinational mobile communications company with operations in many countries in Africa and the Middle East. MTN describes itself as “the leading telecommunications provider in Africa and the Middle East” and has been active in 21 countries since the beginning of 2007. (As of 2004, Africa has been the fastest growing mobile phone market in the world.) The group’s subscriber base is 103.2 million (as of December 2008). MTN enjoys a dominant market share and is the largest in the world.

The deal: The deal structure finally differs from last year’s, allowing both companies to hold shares in each other, while minority shareholders can elect to pay cash. MTN and its shareholders will buy 33% of Bharti for $10 billion. As part of the deal, Bharti is offering MTN and its shareholders $4 billion in stock and $10 billion in cash. Bharti has already held talks with eight banks, including Citigroup, for between $3 billion and $4 billion of the $5 billion it plans to borrow.

BizAddict Verdict: As is the case with any major acquisition, Bharti must first endure some pain in the form of debt and equity dilution before realizing the potential gains from acquisitions. As in the case of stock price movements, it is expected to be volatile until the transaction closes, but Bharti and his investors will need to be patient and take a long-term approach to enjoy the rewards of the acquisition. We recommend buying this stock at current levels for a long-term perspective. If the deal goes through, Bharti won’t look back for years.