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Mtn-Bharti Airtel Tie-Up in Limbo

Posted by jestin Wednesday, September 16, 2009

Johannesburg — AFTER four months of negotiations about a tie-up between the cellular giants MTN and Bharti Airtel, investors are no nearer to knowing what is likely to happen - or if anything will happen at all.

That has not stemmed the constant speculation, with anonymous leaks suggesting the deal is about to be signed, countered by rumours that the whole thing is heading for the scrapheap.

The only solid news so far is the belated interest being taken by SA's authorities, as they flex their muscles and prepare to influence any deal.

The Independent Communications Authority of SA (Icasa) now says it may stage hearings to determine whether it should - or even can - approve or veto a change of shareholding in a company holding a licence to operate in SA.

Chairman Paris Mashile told Reuters this week that once the companies drew up their documentation, Icasa would look at MTN's licensing conditions.

Reuters also quoted a senior government official as saying that a tie-up would need the Cabinet's approval.

That officialese could delay the finalisation of a deal until year's end, presuming that a deal is actually thrashed out.

The Financial Times has speculated that the plan may flounder because of the South African government. The newspaper said Trevor Manuel , then finance minister, told MTN chairman Cyril Ramaphosa last year that SA's "strategic corporations" would never be allowed to be domiciled offshore. This week, Communications Minister Siphiwe Nyanda reiterated MTN was a South African company, and the government was keen for it to remain here.

That suggested that a tie-up with Bharti was unlikely for the time being, the Financial Times said.

Yet that seems improbable, as Pretoria's warning was issued long before these discussions.

So MTN must believe it can work around any political opposition by the nature of its deal with Bharti, which involves cross-ownership and independence rather than a merger.

Such uncertainties prompt telecoms analyst Irnest Kaplan, MD of Kaplan Equity Analysts, to see only a 50-50 chance of it going ahead. He insists it would be a bad move.

"I have been negative about this deal since day one. I don't understand the rationale for doing it and who is going to control the entity."

A suggestion that working together would prevent them from ever bidding against each other as they expand into other countries is a false notion, Kaplan says, as their paths are unlikely to cross.

Nor is he swayed by the argument that they will gain large economies of scale for buying networking equipment. Both already have serious buying power in their own right.

Kaplan, who describes himself as "a microscopic minority shareholder", also dismisses the notion that they could share best practices.

"MTN can't be taught by Bharti how to do business in Africa.

"Bharti is very good at operating in a low-cost market, but I don't see MTN as doing a lot better because of Bharti."

Their networks are too far apart to gain any of the benefits that come from merging with operators in neighbouring countries, such as shared billing systems and crossborder roaming.

There are no compelling reasons for a tie-up, Kaplan says.

"If they want to expand into India this isn't expansion - by giving away a percentage of their company for a percentage of another company they are giving up a big portion of their business that is also growing.

"Bharti has a strong network in India and that's it."

The talks are due to end on September 30. Some analysts expect the negotiations to continue. Others say the two parties will walk away. Nobody really knows.

But the speculation will carry on regardless.

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