Bharti Airtel today announced that its deadline for the $23 billion share-swap deal with MTN, the South African telecom firm, is being extended till September 30. It also, for the first time, stated that the discussions between the two were "progressing satisfactorily".
This is the second such extension since the announcement of talks on May 26; the initial deadline was July 31 and then August 31.
However, as a note of caution, the statement also said the talks were yet to get into details and the discussions may or may not lead to any transaction.
Still, banking sources involved in the deal said the extension was principally being made to work out the final details of an agreement.
The May announcement came just a year after earlier merger talks failed over issues of management control, and subsequent negotiations between MTN and the Anil Ambani-controlled Reliance Communications were called off, as a result of objections from the Mukesh Ambani-led RIL.
The deal, if successful, will create the world's third-largest telecom company. With over 200 million subscribers and over $20 billion in revenues, Sunil Mittal's Bharti is to acquire a 49 per cent "economic interest" in MTN. In return, MTN will acquire 25 per cent "economic interest" for $2.9 billion and MTN shareholders will acquire another 11 per cent in Bharti Airtel.
In all, MTN and its shareholders will acquire 36 per cent in Bharti Airtel in the form of global depository receipts (GDRs) that will be listed on the Johannesburg stock exchange.
The deal will have to clear several regulatory hurdles and also require shareholders' endorsement in South Africa and India. For instance, rules in South Africa require 75 per cent of those present and voting to clear Bharti's entry. About 61.23 per cent of MTN's shareholding is widely held and many shareholders have openly said they want Bharti to offer a higher price. Which, say banking sources, would mean Bharti forking out another $1 billion.
Polaris Capital, which has about 1.5 per cent stake in MTN, is not for the deal as presently reported. Similarly, Coronation Fund, which holds about 5 per cent stake, has still not committed to supporting the resolution.
Bharti, however, has the support of large MTN shareholders like the Mikati family of Lebanon, which holds 10.18 per cent and NewShelf (through which MTN employees hold equity) with 14.87 per cent. Beside the directors, who own 0.22 per cent.
The deal is also facing resistance from some shareholders of Bharti, who have been telling the Securities and Exchange Board of India (Sebi) that MTN legally needs to make an open offer to shareholders. The Securities Appellate Tribunal will be hearing on August 28 an appeal made by a shareholder seeking clarity on a Sebi order, which exempts MTN from making such an open offer if a merger deal materialises, provided it does not convert its GDRs into equity.
However, banking sources said MTN has no intention of converting its GDRs into equity. They also said Indian laws do not allow a company to go for dual listing or even secondary listing on the stock exchange of another country. This could be an issue, since the two companies are looking at a merger, though not in the first phase.
Watchers also say the deal also has to follow South Africa's tough codes for empowerment of the black community; under this, management control has to remain with blacks. However, other banking sources say the policy only seeks to ensure blacks have enough shareholding; black domination of the board isn't required.