MTN plans reverse takeover of Reliance

Joe Leahy | Published: June 03, 2008 00:00:00 | Updated: February 01, 2018 00:00:00

FT Syndication Service

MUMBAI: South Africa's MTN is considering a reverse takeover of India's Reliance Communications as part of talks to combine the pair and create an emerging markets telecoms giant, people familiar with the matter said.

The proposal would follow the same structure as one abruptly rejected late last month by Bharti Airtel, India's biggest mobile operator by sales, which until recently was locked in takeover talks with MTN.

Under the plan, Reliance Communications' chairman, billionaire industrialist Anil Ambani, would accept MTN stock in exchange for his 66 per cent holding in the Indian company. This would in turn make him the biggest single shareholder in the enlarged MTN.

MTN, which has a market value of about $38bn, would also make a cash tender offer to the minority shareholders of Reliance Communications, India's second-largest mobile phone operator by subscribers, which has a market capitalisation of about $28bn.

A takeover of Reliance Communications by MTN would create one of the world's top emerging markets telecoms groups with a combined market value of close to $70bn and nearly 120m subscribers across Africa, the Middle East and South Asia.

Reliance would gain access to MTN's global network, while MTN would win a significant foothold in the fast-growing South Asian market.

Reliance said it was opening exclusive talks with MTN for up to 45 days to discuss a potential combination. Mr Ambani said the partnership "would provide investors, customers and the people of both companies a unique and global platform for exponential growth".

The company declined to give further details on the deal and people familiar with the talks said no valuation was available as talks were in the opening stages.

But one person said the final outcome would be more attractive for MTN than Bharti's indicative offer of R165-R175 per share for the South African company.

If MTN issues new stock to Mr Ambani in exchange for his two-thirds stake in Reliance, he will still end up with a stake of more than 30 per cent in the enlarged South African company, by far the largest of any single shareholder.

Mr Ambani will not face the same hurdles as Bharti from rules that restrict foreign ownership of Indian telecoms companies to 74 per cent. While Reliance is only 10 per cent foreign held, Bharti is 65 per cent overseas owned.

Reliance Communications is being advised by Lazard, MTN by Deutsche Bank and Merrill Lynch and Bharti by Standard Chartered.