Indian telecom giant Bharti on Monday announced that it has opened talks for acquiring 49 per cent stake with South African MTN in an estimated $23-billion deal, exactly a year after it pulled out of negotiations alleging that foreign company had deviated from agreement.
The two companies signed an agreement to hold exclusive talks for a deal that could include $10 billion in cash and $13 billion in shares and see emergence of a combined entity of $20 billion in terms of revenue and 200 million subscribers globally.
In almost identical statements detailing the contours of the agreement, the two sides said that MTN too would acquire 36 per cent stake in Bharti as part of the deal.
After the announcement, Bharti shares plunged Rs 46.45 or 5.4 per cent to close at Rs 811 on BSE.
The proposed $23-billion mega deal between Bharti Airtel and South Africa's MTN would be the biggest ever M&A transaction involving an Indian company.
The potential value of the Bharti Airtel-MTN deal, which would involve a complex structure in which both the entities would pay cash and stock for stakes in each other, would amount to $23 billion.
This would be the biggest M&A deal involving an Indian entity, prior to this the largest deal by an Indian company so far has been Tata Steel's takeover of European steel major Corus for $12.2 billion.
This is followed by British telecom giant Vodafone's purchase of controlling stake in Indian mobile service provider Hutch Essar for about $10 billion.
As per the exploring agreement, MTN and its shareholders would acquire around 36 per cent economic interest in Bharti Airtel. While, the Sunil Mittal-promoted Bharti Airtel would acquire 49 per cent stake in South African telecom giant MTN.
According to global consultancy major Grant Thornton Partner and Head, Mergers and Acquisitions Pankaj Karna, "If you have the capital and an organisational mindset to manage them, the downturn represents a great time for M&A as long as you play it close to your core business and leverage on your market knowledge and sector strengths."
"Bharti would acquire a 49 per cent shareholding in MTN and, in turn, MTN and its shareholders would acquire an approximate 36 per cent economic interest in Bharti, of which 25 per cent would be held by MTN with the remainder held directly by MTN shareholders," Bharti said in a statement.
MTN was also courted by Anil Ambani Group company RCom after Bharti pulled out of negotiations on May 26 last year accusing that the South African company's Board changed the structure to make Indian teleco its subsidiary.
Ambani, however, could not transact the deal as his elder brother Mukesh-led RIL slapped legal notices on MTN warning them that it had the Right of First Refusal on Reliance Communication.
Stating that the partnership would create an emerging market 'telecom powerhouse,' Bharti chairman Sunil Mittal said: "Both companies would stand to gain significant benefits from sharing each other's best practices in addition to savings emanating from enhanced scales."
Last year, Bharti was looking at an estimated $45-billion deal to acquire MTN before the talks fell.
"We are excited at the prospect of teaming up with Bharti, India's number one wireless operator and one of the most strongly capitalised players amongst emerging market pear group," MTN CEO Phuthuma Nhleko said in a statement.
Bharti, which had claimed last year that global funders had pledged $60 billion for the deal, would now pay around $7 billion in cash for the deal while MTN would pay $2.9 billion in cash.
Besides, the deal would involve share transactions worth 13 billion dollars from both the sides.
As per the statement, MTN would have the right to further increase its equity in Bharti from the proposed 36 per cent but did not elaborate on as to what level the equity holding could be raised.
"The broader strategic objective would be to achieve a full merger of MTN and Bharti as soon as it is practicable," MTN said.
While Bharti is the largest telecom player in India with a revenue of about Rs 37,000 crore (Rs 370 billion) and market capitalisation of over Rs 1.60 lakh crore (Rs 1.60 trillion), MTN is a global player operating in about two dozen countries.