South Africa's MTN extends exclusive talks with Reliance

Enlarge Photo A woman walks past the entrance of the headquarters of South Africa's MTN Group in...

Wed, Jul 9 08:53 PM

By Gugulakhe Lourie and Rina Chandran

JOHANNESBURG/MUMBAI (Reuters) - South African mobile phone operator MTN Group and India's Reliance Communicationshave extended exclusive talks on a potential tie-up to create a top-10 global telecom group.

"I can't give you the reason why we have extended the talks," MTN spokeswoman Nozipho January-Bardill told Reuters.

The two-week extension, announced on Wednesday, comes after a claim on shares in the Indian company by Mukesh Ambani, estranged brother of Reliance Communications Chairman Anil Ambani, and a sharp drop in share prices created obstacles to completing a deal by the original deadline of July 8.

The new deadline is July 21.

MTN and Reliance said on Wednesday there was no certainty the discussions would result in a deal.

"I'm sorry I can't comment on anything other than that," the spokeswoman said when asked if MTN was confident the brothers would iron out their differences so the deal could go through.

MTN shares initially rose 2.17 percent, and later pared its gains to trade 0.36 percent higher at 128.50 rand.

Consultants Frost & Sullivan, said the potential value of the deal to both MTN and Reliance Communications was too great to try to conclude negotiations quickly.

"It would indicate that both parties are eager to see a completion of talks in either direction," said Lindsey McDonald.

"From MTN's position, there are certainly other operators that could be potential targets or partners, and the timing for a deal of this nature makes complete sense."

Reliance shares, which had lost 27 percent since the company first said it was in talks, rose as much as 7 percent on Wednesday after the July 8 deadline for talks had passed without a statement from either company, interpreted as a signal the deal was off and removing the risk of legal action by Mukesh Ambani.

They subsequently gave up some gains after the announcement and were up 6.15 percent at 440.95 rupees at 1345 GMT, supported by a view that as the talks were being extended, both sides had confidence the legal issue could be resolved.

"Extension is a relief, but there is no guarantee that a deal will be done. It gives me a feeling that Reliance Communications is desperate to do something, but MTN may not have that compulsion," Harit Shah, a telecoms analyst at Angel Broking in Mumbai said.

"No doubt it is advantageous for Reliance Communications, because if exclusivity had ended, MTN would have started talking to other suitors. Still it's very risky, with Mukesh Ambani hanging like a sword."

TELECOMS GIANT

MTN and Reliance Communications started talks on May 26 as part of an effort that could create an emerging markets telecoms giant with operations in about two dozen countries and around 120 million subscribers.

The talks began after Reliance Communications' larger rival Bharti Airtel failed to reach a deal with MTN. At the time, MTN had a market capitalisation of $38 billion and Reliance Communications was worth $28 billion, but a sharp slide in markets has since eroded valuations.

On Tuesday, MTN had a market capitalisation of $31 billion, and Reliance Communications' had fallen to $20 billion.

Media reports and a source earlier indicated the two firms were aiming for a reverse takeover, with a share swap that would give the Anil Dhirubhai Ambani Group the largest shareholding in MTN and make Reliance Communications a subsidiary of MTN.

That triggered a claim of right of first refusal from Mukesh Ambani, who runs Reliance Industries, India's most valuable listed company.

Mukesh and Anil were ranked the world's fifth and sixth richest men by Forbes magazine earlier this year.

"Clearly, this extra time is for Reliance Communications to settle the dispute with Reliance Industries," said Kevin Trindade, a telecom analyst at brokerage KR Choksey in Mumbai who has a buy rating on Reliance Communications.

MTN has about 68 million subscribers and has pursued an aggressive acquisition spree in risky but lucrative African and Middle Eastern markets. It is eyeing other emerging markets.

Jayesh Shroff, fund manager at SBI Asset Management, said it was difficult to predict what would happen in the talks.

"Everything depends what structure they are looking at and at what valuation, which is not yet clear."

(Additional reporting by Devidutta Tripathy in New Delhi)

Inside News

Editor's picks