Can Bharti Airtel afford MTN? That’s the question on the lips of shareholders and
analysts this week after MTN confirmed speculation that it is in talks with India’s largest cellular operator. If the deal were to happen, it would be one of the biggest-ever deals in global telecommunications and the combined group would be the one of the world’s largest emerging markets telecom operators.
But analysts said Bharti would have to offer MTN shareholders a substantial premium to the share price — perhaps more than R200/share — to convince them to sell out.
However, the higher price could make MTN too expensive for Bharti, which is a similar size to the SA-based operator. Bharti has already secured US$12bn in commitments from Goldman Sachs and Standard Chartered.
Speculation about and then confirmation of the talks sent MTN’s share price soaring in the past two weeks. On Tuesday, the group’s market capitalisation topped R300bn for the first time, making it the third most valuable company on the JSE after Anglo American and BHP Billiton.
MTN’s share price could run further still, MTN’s board may hold out for an offer of nearer R180/share. Bharti has made an indicative offer of about R160.
Irnest Kaplan, of Kaplan Equity Analysts, says MTN shareholders should hold out for more. He says the expected return from MTN over the next few years will far outstrip the reported indicative offer price. “It’s a decent price but where are shareholders going to put their money to get the same sort of return MTN will offer them over the next three to five years? If shareholders were offered R200 or more, then we’d be talking.”
Denis Smit, MD of market intelligence firm BMI-TechKnowledge, says Bharti’s offer would have to be mostly in cash if investors are to accept it.
Analysts say foreign exchange controls could put the kibosh on an all-share or mostly share-based offer. Reserve Bank regulations could prevent larger shareholders in MTN from taking up significant positions in Bharti, as its shares are listed on the Bombay Stock Exchange.
Smit says that as a result, Bharti may have to gear up its balance sheet to fund the deal. At the end of March, Bharti already had net debt of 42bn rupees (R7,7bn). Investors in Bharti have signalled their displeasure at the talks, sending Bharti’s share price tumbling since speculation about the bid first emerged.
However, Japanese brokerage firm Nomura Securities points out that Bharti is 30,5% owned by cash-flush Singapore Telecom, which “may not remain on the sidelines in the event of the discussions going to a more advanced stage”.
Analysts say the talks could also reignite interest from China Mobile, the world’s largest operator by subscriber numbers. MTN held inconclusive merger talks with China Mobile in late 2006. Other potential suitors could include the UK’s Vodafone (which holds 50% of Vodacom) and another, smaller Indian operator, Reliance Communications.
“If Bharti’s talks with MTN get serious, there will be a bidding war,” Smit says. If this happens, some analysts feel this could push MTN’s share price above R200/share.
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