Challenges of Merger Integration
This is by far the most extensively tracked transaction that was a result of the growing ambition of two companies to jointly build the world’s third-largest telecom operator. The combined entity would have over 200 million subscribers, operations spanning across 23 countries and revenues of approximately $20 billion. But what made it more intriguing was the fact that both these players belong to emerging markets and that this deal attracted substantial political and legal attention.
The Bharti-MTN story traces back to May 2008, when the two telcos first entered into a dialogue for a possible merger. The first round of talks did not bear fruit due to a failure to decide which company would retain overall control of the combined entity and the subsequent bid put in by RCom.
However, Sunil Mittal’s dream to transform Bharti Airtel into an international brand name with global footprints was not thwarted and talks were revived in May 2009. Bharti and MTN were in exclusive discussions, with the deadline for a final decision postponed twice over. This time, clearly, there was a greater zeal from both ends to find the best way to join forces keeping in mind the learnings from their previous attempt at the merger and constraints in execution.
The proposed deal included Bharti acquiring a 49 per cent stake in MTN, with MTN and its shareholders acquiring a 36 per cent economic interest in Bharti. The transaction was valued at roughly $23 billion and would have provided Bharti with an easy access to the growing African market, especially attractive in light of the saturation of the urban Indian market.
The deal and the broad structure that was being discussed by both sides had taken into account the sensibilities and sensitivities of both companies and their respective countries. The question that needs to be asked is—what really affected the ability of both parties to successfully conclude the deal? Potentially the triggers for the deal disconnect were:
Dual Listing: This issue perhaps came about probably much later in the deal discussions. This was a result of the interests of the South African government, given its own stake in MTN and its fear of diluting the telcos’ local flavour.
Capital Convertibility: Structuring of the deal was always expected to be within the boundaries of prevailing capital convertibility laws of each country. Ultimately, the guidelines could not be met.
Deal Value: While not a major hurdle, it had to make commercial and economic sense to both parties. Given the size of the deal and multiple stakeholder interest, there were always demands for sweetening the deal further by some of the stakeholders.
Certainly the challenges of merger integration, whether organisationally or otherwise, would have been interesting to watch. Ultimately, while the deal may have made good strategic sense and would have created economic value for shareholders, the real challenge for any deal of this magnitude will always remain its ability to overcome regulatory and sovereign obstacles.
The failed discussions are definitely not the end of the road for either of these telecom giants. They will certainly continue to look at inorganic opportunities for growth with operators in geographies they wish to enter. And as Mr Sunil Mittal said: “It is my job to move forward and not look back.”
The writer is the ED & Head, ICE, KPMG (INDIA)
