India's Reliance in 'exclusive talks' with MTN
Tuesday, 27 May 2008

AFP, NEW DELHI - India's Reliance Communications said Monday it was in tie-up talks with MTN after rival mobile operator Bharti Airtel hung up on discussions with the South African phone giant in a dispute over control.

MTN Group, Africa's biggest cellular operator, and Reliance Communications, India's second largest mobile firm by subscribers, were discussing a "potential combination of their businesses" to "achieve a unique and global platform for exponential growth," the Indian company said in a statement.

Reliance Communications, headed by billionaire Anil Ambani who is known as the "Marathon Man" for his penchant for jogging, said the two firms agreed to hold "exclusive talks" for 45 days.

A partnership could create an emerging market powerhouse with a 116 million subscriber base, eclipsing most Western mobile phone businesses.

Any deal would have to satisfy political sensitivities in South Africa about the future of MTN, one of the country's most prestigious corporate flagships, as well as stay on the right side of Indian foreign investment rules that require domestic telecoms firms to be 74 percent locally-owned.

"A further announcement will be made when appropriate" but there was "no certainty" a deal would be struck, said Reliance, urging investor caution.

The announcement came two days after MTN's talks with Bharti, India's biggest mobile operator, which is 30.5-percent owned by SingTelNet, collapsed over an ownership structure proposed by the South African firm.

The proposal would have involved "Bharti Airtel becoming a subsidiary of MTN" that would have "severely compromised" its dream of being a "true Indian multinational telecom giant, symbolising the pride of India," Bharti said.

A Reliance Communications spokesman said the company, which reported net profit of 1.35 billion dollars last year, had nothing to add to its statement.

But an industry source close to the discussions said the "line of talks is completely different from those with Bharti. These are not merger or acquisition talks."

The negotiations could involve setting up a "special purpose vehicle" for investment purposes in the fast-growing emerging markets of Africa, the Middle East and India, where both could leverage their strengths, analysts said.

Reliance Communications is the main company of the Anil Dhirubhai Ambani Group, which operates in the power, financial services, construction and telecommunications sectors.

Reliance Communications is valued at 28 billion dollars while MTN, whose shares have rocketed this year, is valued at around 38 billion.

"These talks are at a very nascent stage, but I don't see Anil Ambani agreeing to anything in which the company would have to defer" to MTN, said telecommunications analyst Nishna Biyani at Mumbai's Prabhudas Lilladher.

Reliance held informal talks last year with the South African firm but the discussions were not pursued, a company official said.

MTN serves 21 markets in Africa and the Middle East, has 68 million customers and covers a region with over half a billion people. Reliance has 48 million subscribers, while ex-suitor Bharti has 62 million.

Bharti wanted to take 51 percent control of MTN in what would have been India's biggest overseas merger. But MTN was seen in South Africa as a "merger of equals" at the very least, reports said.

MTN's management is "very close to the South African government and might not wish to do something which might be seen as politically unacceptable," Dalibor Vavruska, analyst at ING Baring, told India's CNN-IBN.

Reliance Communications shares closed closed down 5.08 percent or 29.10 rupees at 543.20 amid worries any transaction might strain its balance sheet.

Bharti shares jumped 3.15 percent or 26.35 rupees to 863.15 rupees on investor relief it had exited the talks, though analysts said a Bharti-MTN deal could have been "win-win" in the long term.

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