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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

While announcing results for the six-month period ending Aug. 31, MTN CEO Phuthuma Nhleko expressed his desire not to repeat the past mistakes of local companies that stepped onto the global stage, were absorbed into larger international groups and lost their South African identity.

The loss of the company's South African "DNA" had been the concern of President Zuma as well as COSATU, the labor federation that has opposed the merger.

Early Wednesday, South African Communications Minister Siphiwe Nyanda gave the strongest indication that the government was not willing to budge on the matter of the dual listing when he told journalists that MTN must remain South African, managed by locals. The two governments kept insisting the fate of the deal was in the other country's hands.

The deal was complex because shareholders holding a combined 75 percent stake in MTN would have had to approve the deal. MTN shareholders had the option to take $13 billion in cash for a 36 per cent stake in the reorganized company instead of the earlier proposed $7 billion in cash and $6 billion worth of Bharti Airtel shares.

To demonstrate its commitment to the deal, Bharti had sweetened its deal with an offer giving MTN a 27 percent stake in Bharti Airtel, compared to the 25 per cent that was proposed when the contours of the deal were first announced in May this year. MTN was to pay $2.9 billion in cash to Bharti.

MTN's Nhleko also indicated that though the focus of talks centered on MTN and Bharti, Singapore Telecommunications (SingTel), the Singapore exchange's biggest company and a major (30 percent) shareholder of Bharti, remained an important player. Nhleko said SingTel was "an integral part of the deal" not only in terms of the benefits but additional synergies that would further lower the costs of operations.

The decision to pursue the deal was precipitated by the MTN board two years ago, when it indicated that the group needed to diversify its earnings base. The board also wanted to pursue opportunities for growth because the mobile sector depends heavily on economies of scale as providers expand to lower economic segments and lower tariffs. This model means that bringing down the cost base is a priority.

Analysts who had followed the negotiations raised questions concerning whether the Indians could teach Africans something about doing business in Africa, since the Indian market is very different from the African markets. Another consideration was whether MTN would be able to -- or want to -- leverage its cooperation with Bharti to move into central and East Asia.

India companies pride themselves on their experience in competing in low-tariff, low-ARPU (average revenue per user) markets, which is where many African markets are heading as competition increases.

 

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