Rumours are rife about MTN
ANALYSTS are convinced MTN and Reliance Communications are close to announcing a merger that is deliberately structured to sidestep an attempt to scupper the deal by the estranged brother of Reliance chairman Anil Ambani.
Instead of Ambani selling his stake in Reliance to MTN, the Indian operator may buy a majority stake in MTN, some Indian analysts believe. That would avoid the threat of legal action by Mukesh Ambani, who is claiming the right of first refusal to any shares the communications group sells.
Yet opinion is divided, with the amount of speculation hugely outstripping the scant amount of facts.
MTN is keeping a tight lid on discussions, with no leaks emanating from the company. The situation is different in India, where the newspaper reports are riddled with anonymous sources, but the information they leak is often contradictory.
“There are very few facts,” said SA-based analyst Irnest Kaplan of Kaplan Equity Analysts. “We don’t know what MTN wants to do so everybody is shooting in the dark.”
MTN’s shares have dropped to about R118, down from R165 when it was negotiating a merger with India’s largest operator, Bharti. “The collective wisdom is saying whatever happens it’s not going to be like a Bharti deal. Everyone was excited about a Bharti deal but the market is lukewarm about Reliance,” Kaplan said.
Yet MTN’s record showed it could be trusted to strike a smart deal that would benefit shareholders, he said, and India was a fantastic market for MTN to be exposed to.
Another source said: “The deal will be worded in such a way that it will likely avert a lawsuit from being filed.” The two parties were prepared to move forward and face the Mukesh Ambani challenge if it came. “Their lawyers are telling them it’s an acceptable risk to take.”
The source said the expected news would clarify how much of Reliance would be bought by MTN, and the management structure of the merged entity.
If unexpected problems arose, the parties might agree to extend their negotiations, the Wall Street Journal said.
Talks have centred on Ambani selling his 66% in Reliance Communications to MTN in a share swap. Ambani would become the biggest shareholder of the merged entity. However, Reliance would become a subsidiary of MTN.
Indian regulators cap foreign ownership of a company to 74%, but foreign investors already hold 10% of Reliance, limiting MTN to buying 64%.
India’s Financial Times predicts Ambani could take 51% of MTN by setting up a special purpose vehicle backed by private equity, with Ambani swapping most of his 66% stake for MTN shares. Other sources said Reliance was eyeing an option of directly acquiring 40% of MTN.
A merger between MTN, the largest operator in Africa and the Middle East, and Reliance, the second-largest cell network in India, would create a telecoms titan serving 115-million people in 23 countries.
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