Bharti Airtel And Mtn The Deal Is Dead: Presented By
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BHARTI AIRTEL AND MTN THE DEAL IS DEAD LONG LIVE THE DREAM
Presented by:
Aggarwal (136)
Jaikishen (126)
(148)
11/29/09
Finance F1
Neha Asha S. Pramoth Archit
1
Bharti Airtel
Telecom giant Bharti Airtel is the flagship company of Bharti Enterprises . Started its operations in 1995 . Operates in 23 telecom circles Presently the No . 1 operator in India . In 2009 Airtel was also launched in Sri Lanka . Three individual strategic business units Mobile Services Airtel Telemedia Services Enterprise Services
11/29/09
Finance F1
2
An Overview BHARTI
MTN
REVENUE ( FY 2009) (USD bn)
7.7
12.3
CUSTOMER BASE (in mn)
108 (Aug 2009)
100 ( May 2009)
11/29/09
Finance F1
3
About MTN
It is a global communication partner and world class cellular network . Launched in 1994 , it Operates in 21 countries in Africa and the middle east . The MTN Group is listed in South Africa on the Johannesburg Stock Exchange under the Telecommunications Service Sector .
1 1 /2 9 /0 9
Finance F1
4
Time Line for BHARTI - MTN deal
May 5 , 2008: MTN acknowledged deal talks with Bharti Airtel. May 24 , 2008: Talks between Bharti and MTN were called off. May 26 , 2008: Reliance Communications , India's No 2 mobile operator, started 45-day exclusive talks with MTN led by Anil Ambani, but the talks fell through. July 18 , 2008: Reliance and MTN call off talks. May 25 , 2009: Bharti and MTN announced a revival of merger talks. May 27 , 2009: Four of MTN's top 25 shareholders rejected a tie-up with India's Bharti based on terms unveiled. May 29 , 2009: But MTN's No 2 shareholder , Lebanon's Mikati family, came out in support of the merger talks.
11/29/09
Finance F1
5
Cont ….
June 2 , 2009: MTN's biggest shareholder , state pension fund Public Investment Corporation supported the merger as well July 7 , 2009: MTN and its shareholders can buy 36 per cent in Bharti Airtel via GDRs July 30 , 2009: An Indian government minister says talks between Bharti and MTN, which could eventually lead to a full merger of the two firms, have not been finalised yet. July 31 , 2009 : Standard Chartered is advising Bharti in the merger talks with MTN. Aug 7 , 2009: India's finance minister says Bharti has approached the country's largest lender, State Bank of India, for loans of $1 billion and 50 billion rupees ($1.05 billion).
11/29/09
Finance F1
6
Cont ….
Aug 18 , 2009: Bharti has received bids from more than a dozen foreign banks, including Citi and JPMorgan, to fund its proposed stake buy in MTN, the Economic Times reports, raising hopes for a deal. Sept 22 , 2009: Sebi revises takeover code, which mandated GDRs with voting rights, would trigger a open offer if the holding crossed 15 per cent. Sept 24 , 2009: South African officials and MTN officials meet SEBI and RBI to discuss dual listing. Sept 30 , 2009:Sunil Mittal-led Bharti called off discussions with MTN citing the South African government's rejection of the proposed merger structure, which would have created the world's third largest telecom company with combined revenues of over $20 billion annually and a subscriber base of over 200 million.
11/29/09
Finance F1
7
Key Highlights Of The Deal
Bharti will acquire a 49% shareholding in MTN, which along with its shareholders, will acquire an economic interest of approximately 36% in Bharti, out of which 25% will be held by MTN and the remainder by its shareholders.
As per the proposed scheme of arrangement, MTN will acquire a 25% in Bharti for an effective consideration of about $2.9 bn in cash and newlyissued shares of MTN, close to 25% of the currently issued share capital of the South African firm.
Bharti will have substantial participatory and rights in MTN, thus enabling it to fully 11/29/09 governance Finance F1
8
Key Highlights Of The Deal
MTN's economic interest in Bharti will be equity accounted and the company will enjoy appropriate representation on its board.
Bharti will act as the primary vehicle for both Bharti and MTN for pursuing further expansion in India and Asia, while MTN will be the primary vehicle for both Bharti and MTN for further expansion in Africa and the Middle East. The combined entity will have a customer base of over 200 mn subscribers and combined revenues of over $20 bn.
11/11/11
Finance F1
1
Key Highlights Of The Deal
Bharti will acquire approximately 36% of the currently issued share capital of MTN from its shareholders for a consideration of ZAR 86.00 in cash and 0.5 newly issued shares of Bharti in the form of Global Depository Receipts (GDRs) for every acquired share of MTN which, in a combination with MTN’s shares issued in part settlement of its acquisition of a post transaction economic interest of approximately 25% in Bharti, will take the company’s stake to 49% of MTN’s enlarged capital.
11/29/09
Finance F1
10
11/29/09
Finance F1
11
Bharti offers last mile sops to wrap MTN deal on 22 nd Sept , 09
Bharti Airtel has offered to retain the top management of MTN for at least three years In the revised tie-up plan, MTN was to get a 27-% stake in Bharti instead of the 25 % earlier proposed MTN's minority shareholders were given the option to take $13 billion in cash instead of $7 billion cash and $6 billion worth of stock.
11/29/09
Finance F1
12
BENEFITS OF THE DEAL
The deal will make the Bharti-MTN combined entity the world’s third largest operator.
mobile
MTN will expand Bharti’s presence in an additional 21 countries. In terms of global presence, Bharti currently has a presence only in Sri Lanka, Seychelles and Channel Island.
Access to the market with higher ARPU as compared to India.
11/29/09
Finance F1
13
Backlogs of the deal MTN already has 100 mn subscribers and its geographies with a high GDP/per capita are already saturated. Bharti will, thus, find it a tough task to increase the number of subscribers in geographies with a low population and GDP/per capita. Since MTN operates across 21 geographies, there could also be integration issues and delay in unlocking of synergies between the two entities. The deal will also result in a significant earnings dilution for Bharti over the short term, which could have a significant negative impact on its stock price. It can create a debt pile of $ 4 billion on the 14 11/29/09 Finance F1
Importance of the deal for Telecom industry..
There is not much juice left in the Indian telecom market. Indian Telecom Market will reach stagnation by the end of 2010, while African market is estimated to grow at 40 %. On the ARPU front, Africa ranks better than India. As compared to India, in Africa, per-minute prices are higher, demand for SMS over voice is limited because of low literacy levels. It would yield cost savings, allow for technology sharing, and provide financial muscle for more expansion.
11/29/09
Finance F1
15
Why the deal was called off?
On 30TH Sept, 2009 Sunil Mittal-led Bharti called off discussions with MTN citing the South Africa government's rejection of the proposed merger structure .
The SA Govt was insisting Indian Govt to change laws to accommodate Dual Listing Company (DLC) structure.
India rejected because it would have meant allowing capital account convertibility and amending the Companies Act & listing agreement to facilitate a single deal.
11/29/09
Finance F1
16
Dual Listing A process by which a company would be allowed to be listed and traded on the stock exchanges of two countries. The dual listing system would allow the companies to retain their separate legal identities Done to protect the national identities of the two companies. From the shareholders' perspective they can buy and sell shares of both the companies on the stock exchanges in the two countries.
11/29/09
Finance F1
17
Reasons for non acceptability of Dual listing by India . The existing FDI policy framework would have been rendered unprofitable. (as Indian authorities would not have been able to monitor sectoral caps on direct and indirect investment that are imposed on 13 industry sectors, including telecom.) Ineligible entities for investing in Indian companies could have acquired a stake through transactions carried out on the overseas exchange, in violation of the Foreign Exchange Management Act (FEMA) Weakening of the SEBI’s oversight of the stock market, led to trading activity being taken away from stock exchanges in India and a likely revenue loss for the Indian exchequer. Another important bottleneck that the government of India should consider is removing the cap on capital account convertibility.
11/29/09
Finance F1
18
After ca lling off the deal …. Bharti Airtel Ltd’s shares had risen 4 % to Rs435 but that relief rally was short-lived, with its shares falling by 8 % to Rs400 on Monday(5th oct.) The resources are free for Bharti to explore 3G related opportunuties in India and expand its operation in Sri Lanka. Chairman Sunil Mittal stated that he would continue to search globe for acquisitions. Bharti is valued higher compared to the other two peers (reliance communications and idea cellular ) in terms of EBITDA and therefore , Bharti appears to be better placed to take advantage of new opportunities in the Indian
11/29/09
Finance F1
19
LOSS TO THE BANKS INVOLVED
Banks are stated to lose potential fee of over $200
million due to the failure of the Bharti-MTN transaction. Advisors and bankers to Bharti would lose about $120
million while MTN’s bankers and advisors are believed to have lost $80 million.
Standard Chartered was the lead advisor to Bharti while Barclays was the joint M&A advisor.
Bank of America , Merrill Lynch and Deutsche Bank were advising MTN.
11/29/09
Finance F1
20
THANK YOU !!...
11/29/09
Finance F1
21
BHARTI AIRTEL AND MTN THE DEAL IS DEAD LONG LIVE THE DREAM
Presented by:
Aggarwal (136)
Jaikishen (126)
(148)
11/29/09
Finance F1
Neha Asha S. Pramoth Archit
1
Bharti Airtel
Telecom giant Bharti Airtel is the flagship company of Bharti Enterprises . Started its operations in 1995 . Operates in 23 telecom circles Presently the No . 1 operator in India . In 2009 Airtel was also launched in Sri Lanka . Three individual strategic business units Mobile Services Airtel Telemedia Services Enterprise Services
11/29/09
Finance F1
2
An Overview BHARTI
MTN
REVENUE ( FY 2009) (USD bn)
7.7
12.3
CUSTOMER BASE (in mn)
108 (Aug 2009)
100 ( May 2009)
11/29/09
Finance F1
3
About MTN
It is a global communication partner and world class cellular network . Launched in 1994 , it Operates in 21 countries in Africa and the middle east . The MTN Group is listed in South Africa on the Johannesburg Stock Exchange under the Telecommunications Service Sector .
1 1 /2 9 /0 9
Finance F1
4
Time Line for BHARTI - MTN deal
May 5 , 2008: MTN acknowledged deal talks with Bharti Airtel. May 24 , 2008: Talks between Bharti and MTN were called off. May 26 , 2008: Reliance Communications , India's No 2 mobile operator, started 45-day exclusive talks with MTN led by Anil Ambani, but the talks fell through. July 18 , 2008: Reliance and MTN call off talks. May 25 , 2009: Bharti and MTN announced a revival of merger talks. May 27 , 2009: Four of MTN's top 25 shareholders rejected a tie-up with India's Bharti based on terms unveiled. May 29 , 2009: But MTN's No 2 shareholder , Lebanon's Mikati family, came out in support of the merger talks.
11/29/09
Finance F1
5
Cont ….
June 2 , 2009: MTN's biggest shareholder , state pension fund Public Investment Corporation supported the merger as well July 7 , 2009: MTN and its shareholders can buy 36 per cent in Bharti Airtel via GDRs July 30 , 2009: An Indian government minister says talks between Bharti and MTN, which could eventually lead to a full merger of the two firms, have not been finalised yet. July 31 , 2009 : Standard Chartered is advising Bharti in the merger talks with MTN. Aug 7 , 2009: India's finance minister says Bharti has approached the country's largest lender, State Bank of India, for loans of $1 billion and 50 billion rupees ($1.05 billion).
11/29/09
Finance F1
6
Cont ….
Aug 18 , 2009: Bharti has received bids from more than a dozen foreign banks, including Citi and JPMorgan, to fund its proposed stake buy in MTN, the Economic Times reports, raising hopes for a deal. Sept 22 , 2009: Sebi revises takeover code, which mandated GDRs with voting rights, would trigger a open offer if the holding crossed 15 per cent. Sept 24 , 2009: South African officials and MTN officials meet SEBI and RBI to discuss dual listing. Sept 30 , 2009:Sunil Mittal-led Bharti called off discussions with MTN citing the South African government's rejection of the proposed merger structure, which would have created the world's third largest telecom company with combined revenues of over $20 billion annually and a subscriber base of over 200 million.
11/29/09
Finance F1
7
Key Highlights Of The Deal
Bharti will acquire a 49% shareholding in MTN, which along with its shareholders, will acquire an economic interest of approximately 36% in Bharti, out of which 25% will be held by MTN and the remainder by its shareholders.
As per the proposed scheme of arrangement, MTN will acquire a 25% in Bharti for an effective consideration of about $2.9 bn in cash and newlyissued shares of MTN, close to 25% of the currently issued share capital of the South African firm.
Bharti will have substantial participatory and rights in MTN, thus enabling it to fully 11/29/09 governance Finance F1
8
Key Highlights Of The Deal
MTN's economic interest in Bharti will be equity accounted and the company will enjoy appropriate representation on its board.
Bharti will act as the primary vehicle for both Bharti and MTN for pursuing further expansion in India and Asia, while MTN will be the primary vehicle for both Bharti and MTN for further expansion in Africa and the Middle East. The combined entity will have a customer base of over 200 mn subscribers and combined revenues of over $20 bn.
11/11/11
Finance F1
1
Key Highlights Of The Deal
Bharti will acquire approximately 36% of the currently issued share capital of MTN from its shareholders for a consideration of ZAR 86.00 in cash and 0.5 newly issued shares of Bharti in the form of Global Depository Receipts (GDRs) for every acquired share of MTN which, in a combination with MTN’s shares issued in part settlement of its acquisition of a post transaction economic interest of approximately 25% in Bharti, will take the company’s stake to 49% of MTN’s enlarged capital.
11/29/09
Finance F1
10
11/29/09
Finance F1
11
Bharti offers last mile sops to wrap MTN deal on 22 nd Sept , 09
Bharti Airtel has offered to retain the top management of MTN for at least three years In the revised tie-up plan, MTN was to get a 27-% stake in Bharti instead of the 25 % earlier proposed MTN's minority shareholders were given the option to take $13 billion in cash instead of $7 billion cash and $6 billion worth of stock.
11/29/09
Finance F1
12
BENEFITS OF THE DEAL
The deal will make the Bharti-MTN combined entity the world’s third largest operator.
mobile
MTN will expand Bharti’s presence in an additional 21 countries. In terms of global presence, Bharti currently has a presence only in Sri Lanka, Seychelles and Channel Island.
Access to the market with higher ARPU as compared to India.
11/29/09
Finance F1
13
Backlogs of the deal MTN already has 100 mn subscribers and its geographies with a high GDP/per capita are already saturated. Bharti will, thus, find it a tough task to increase the number of subscribers in geographies with a low population and GDP/per capita. Since MTN operates across 21 geographies, there could also be integration issues and delay in unlocking of synergies between the two entities. The deal will also result in a significant earnings dilution for Bharti over the short term, which could have a significant negative impact on its stock price. It can create a debt pile of $ 4 billion on the 14 11/29/09 Finance F1
Importance of the deal for Telecom industry..
There is not much juice left in the Indian telecom market. Indian Telecom Market will reach stagnation by the end of 2010, while African market is estimated to grow at 40 %. On the ARPU front, Africa ranks better than India. As compared to India, in Africa, per-minute prices are higher, demand for SMS over voice is limited because of low literacy levels. It would yield cost savings, allow for technology sharing, and provide financial muscle for more expansion.
11/29/09
Finance F1
15
Why the deal was called off?
On 30TH Sept, 2009 Sunil Mittal-led Bharti called off discussions with MTN citing the South Africa government's rejection of the proposed merger structure .
The SA Govt was insisting Indian Govt to change laws to accommodate Dual Listing Company (DLC) structure.
India rejected because it would have meant allowing capital account convertibility and amending the Companies Act & listing agreement to facilitate a single deal.
11/29/09
Finance F1
16
Dual Listing A process by which a company would be allowed to be listed and traded on the stock exchanges of two countries. The dual listing system would allow the companies to retain their separate legal identities Done to protect the national identities of the two companies. From the shareholders' perspective they can buy and sell shares of both the companies on the stock exchanges in the two countries.
11/29/09
Finance F1
17
Reasons for non acceptability of Dual listing by India . The existing FDI policy framework would have been rendered unprofitable. (as Indian authorities would not have been able to monitor sectoral caps on direct and indirect investment that are imposed on 13 industry sectors, including telecom.) Ineligible entities for investing in Indian companies could have acquired a stake through transactions carried out on the overseas exchange, in violation of the Foreign Exchange Management Act (FEMA) Weakening of the SEBI’s oversight of the stock market, led to trading activity being taken away from stock exchanges in India and a likely revenue loss for the Indian exchequer. Another important bottleneck that the government of India should consider is removing the cap on capital account convertibility.
11/29/09
Finance F1
18
After ca lling off the deal …. Bharti Airtel Ltd’s shares had risen 4 % to Rs435 but that relief rally was short-lived, with its shares falling by 8 % to Rs400 on Monday(5th oct.) The resources are free for Bharti to explore 3G related opportunuties in India and expand its operation in Sri Lanka. Chairman Sunil Mittal stated that he would continue to search globe for acquisitions. Bharti is valued higher compared to the other two peers (reliance communications and idea cellular ) in terms of EBITDA and therefore , Bharti appears to be better placed to take advantage of new opportunities in the Indian
11/29/09
Finance F1
19
LOSS TO THE BANKS INVOLVED
Banks are stated to lose potential fee of over $200
million due to the failure of the Bharti-MTN transaction. Advisors and bankers to Bharti would lose about $120
million while MTN’s bankers and advisors are believed to have lost $80 million.
Standard Chartered was the lead advisor to Bharti while Barclays was the joint M&A advisor.
Bank of America , Merrill Lynch and Deutsche Bank were advising MTN.
11/29/09
Finance F1
20
THANK YOU !!...
11/29/09
Finance F1
21
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