Bharti pulls out of MTN share deal

How will the markets react to the Bharti-MTN news on Monday?

Earlier, when the news that Bharti was interested in acquiring MTN was announced, there was a lot of fear that they will have to leverage their balance sheet substantially to acquire a company of similar size. The stock had corrected substantially after that. Considering that Bharti has pulled out of the proposal, those fears would be taken care of as the company is not going ahead for any kind of equity dilution or leveraging their balance sheet right now.

Now, that Bharti stock might not be impacted as much, it might go up because of the substantial correction it had seen on fears of an equity dilution. So, we might see a pullback in the stock considering that there would be no dilution now. However, there will also be some kind of a disappointment that Bharti is not going ahead for a global expansion right now. This is a long-term impact, but there can be further proposals as Bharti management also indicated that they plan to take the Bharti model abroad and that they will continue to pursue it. The stock at the moment should react positively for pulling out because of the fears of leveraging the balance sheet or dilution is taken care off.

Post MTN: What would Bharti's strategy be?

It depends on what proposals come. At the moment, the only proposal that was there was MTN and the company's size was substantial. The kind of structure that MTN was proposing for Bharti would not have gone down well with the shareholders. It looked more like MTN acquiring Bharti than the other way round. Clearly, that wasn't acceptable for Bharti's management. Considering all these points, the stock will not react negatively and the management is indicating that they are fully planned on taking the company and the Indian model globally. That's a long-term thing and it will take time. Whenever a suitable proposal comes and goes right, and all conditions are suitable for shareholders, then only it makes sense. But it is too early to say anything on that account.

So, how would Bharti raise money going forward?

Those were the fears and that's why the shares had corrected. There were fears earlier of where will the money be raised or whether the company will go for debt raising or will there be substantial equity dilution to maintain the foreign holding as per government laws. So, those fears were always there. Considering the fact that MTN was big enough and the amount required was quite substantially high, those fears led to the share correction.