Reliance enters merger talks with MTN

India's second biggest mobile operator eyes deal after Bharti walks away

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By  Roger Field Published  May 27, 2008

Reliance Communications, India's second biggest mobile operator by subscribers, has entered talks with South Africa's MTN regarding a possible merger of the two companies.

The development followed Bharti Airtel's decision to end talks with MTN over a proposed deal, owing to disagreements over its structure.

Reliance's chairman, Shri Anil Dhirubhai Ambani, said he was keen to develop a partnership to "provide investors, customers and the people of both companies a unique and global platform for exponential growth," but fell short of explaining what type of deal might be discussed.

Sources close to the deal said that MTN is considering a reverse takeover of Reliance as part of talks to merge the companies to create "an emerging markets telecoms giant," the UK's Financial Times reported.

Together, the two companies would have a customer base of some 116 million subscribers and annual revenues of $14 billion. A deal would also give Reliance a foothold in MTN's existing markets in Africa and the Middle East, including Nigeria, Ghana and Syria.

There is speculation that the deal would follow a similar structure to that rejected by Bharti in late May. Ambani, would accept MTN stock in exchange for his holding of 66% in Reliance, making him the biggest single MTN shareholder, the Financial Times said.

However, it is widely thought that Reliance would have to pay an equal or higher price than what was being discussed with Bharti Airtel.

Bharti Airtel and MTN had reached an in-principle agreement on May 16, and a term sheet was initiated between the two lead bankers. Bharti also said that US and European lenders were ready to pledge $60 billion of funding for the deal, worth up to $44 billion.

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