JUDGING by Indian cellphone giant’s Bharti Airtel’s post-discussions statement about its exploratory talks with MTN, the South African company was right to get out. <\/p>\n
Clearly, what happened was that Bharti constructed a takeover of MTN, but after its board meeting last week MTN came back, turned the idea on its head and suggested taking over Bharti instead. <\/p>\n
Anyway, clearly Bharti was miffed at the notion, and called off the talks in a huff. <\/p>\n
Why MTN executives decided to turn the tables on Bharti is hard to know for sure, but presumably the negotiators got a sense of what the Indian company really wanted: an Indian national champion rather than a business deal. <\/p>\n
Perhaps they then decided to trigger closure by proposing something that they knew Bharti would not like. <\/p>\n
It’s clear that the talks did show promise though. <\/p>\n
Apparently, an in principle agreement was reached on May 16 and a term sheet initialled by the two lead bankers for the companies, and this was presented to the MTN board on May 21. <\/p>\n
Bharti even offered MTN CEO Phuthuma Nhleko the same position in the new company, which was generous. <\/p>\n
Bharti’s offer price for MTN shares was agreed on and frozen at the start of talks. <\/p>\n
“There was no further discussion on the share price of MTN, at any point,” said the Bharti statement, sticking the knife in somewhat. <\/p>\n
But, it continued, “Bharti’s vision of transforming itself from a homegrown Indian company to a true Indian multinational telecom giant, symbolising the pride of India, would have been severely compromised, and this was completely unacceptable to Bharti”. <\/p>\n
Well, you simply can’t do business that way. <\/p>\n
MTN couldn’t and shouldn’t become a function of another country’s national ambitions. <\/p>\n
For all the masses of information that was leaked via Bharti’s bankers to journalists in Asia, the one thing that didn’t come out clearly was that MTN is actually, by some measures, a larger company. Another is that its standalone growth prospects are probably better than Bharti’s. <\/p>\n
This does not mean that Bharti had nothing to offer MTN, in fact it has a lot. <\/p>\n
But MTN has lots to offer too, including an ability to operate successfully in some of the most difficult countries on the planet. <\/p>\n
To structure a deal in which MTN would lose it identity and character in these circumstances, was just, well, nuts. <\/p>\n
This is not the end of it, of course. <\/p>\n
Now MTN is reportedly (according to the Wall Street Journal) considering Indian cellphone company Reliance Communications. <\/p>\n
This might be an easier deal to do because it could have a simpler takeover format. <\/p>\n
And lots of companies are going to be looking at MTN afresh, but presumably any talks in future could be inhibited by the failure of the discussions with Bharti because there is obviously an independent streak to the company that prospective buyers will now have to factor into their discussions. <\/p>\n
Frankly, that is no bad thing. <\/p>\n
What would make sense? Actually, in a way looking in the opposite direction, west instead of east, could serve MTN better. <\/p>\n
A merger with a South American company would provide both companies with a better match of expertise and might be a more familiar operating environment for both MTN as seller or as buyer. <\/p>\n
The larger picture is simply that cellphone usage is peaking everywhere other than in the developing world. <\/p>\n
As a mid-table operator in a high growth market, MTN does need to exercise its mind about the possibility of a transformational merger or risk losing its independence to the top table operators eager to pump up their growth. <\/p>\n
‘Clearly Bharti was miffed at the notion, and called off the talks in a huff’ <\/p>\n
‘MTN is … larger, its standalone prospects probably better’ <\/p>\n