Gurgaon , India (PressExposure) October 08, 2009 -- Who is to blame for the undoing of the Bharti-MTN deal? Bharti has been quick off the blocks in pointing the finger at the South African government, though the South African government disclaims any specific play for which it is to be blamed.
The Economic Times reported that on September 11 the South African government had informed MTN that it would not allow the deal unless the Indian government amended its laws to allow dual listed companies (DLC). In fact, the paper claims that South African treasury secretary Ismail Momoniat had written to his Indian counterpart Ashok Chawla insisting that DLC was a precursor to the deal.
The South African Business Report said that the end of the deal meant giving up on what could have been the single largest foreign direct investment into South Africa. The South African Treasury has, however, denied that the government had blocked the merger, saying it was an amicable decision by the companies.
MTN said the companies had not been able to conclude a transaction within the economic, legal and regulatory framework within which both companies operated.
The immediate impact was a hit on both MTN's shres and the South African Rand. MTN's shares fell to an intraday low of R119 at 4.11pm before rallying back to R122.15 at 4.40pm, after the cellphone operator asked the JSE to suspend trading of its shares until today. The rand lost 15c within half an hour after the news reached the market.
MTN's shares fell to an intraday low of R119 at 4.11pm before rallying back to R122.15 at 4.40pm, after the cellphone operator asked the JSE to suspend trading of its shares until today. The rand lost 15c within half an hour after the news reached the market.
Other losers included banks. Reuters reports that the collapse of talks means banks have lost out on an estimated $50 million-plus of mergers and acquisitions fees. Bank of America Merrill Lynch and Deutsche Bank, which were advising MTN, were on course to share $34 million in fees, according to estimates for Thomson Reuters compiled by Freeman & Co, a merger consultancy.
But what was possibly getting missed in the headlines was palpable relief for the small investors both in India and South Africa, both of whom were feeling left out in the deal.
Reports in the South African media pointed out that the government wanted MTN to retain its South African character especially since MTN had expanded into Africa "through government's help". The Minister of Communications, Siphiwe Nyanda, told Bloomberg that "it would be sad if we saw this entity move into the hands and management of foreign nationals. Its management must remain South African".
South African Analysts, however, were not surprised that the deal was off and were relieved as they felt that the as it was proposed did not offer value for MTN minority shareholders.
At the end of the day, the Bharti-MTN deal's collapse may simply have been because Sunil Mittal forgot a cardinal principle he had played by so far: Get all the public stakeholders on your side to impress a commonality of interest.