Bharti Airtel has entered into an exclusivity agreement (till July 31) to enter a complicated and circular ownership structure with MTN Group – Bharti owning 49% stake in MTN and MTN owning 25% of Bharti in return. The structure envisages a 25% swap of new shares (MTN pays $2.9bn). The cross-shareholding structure seems aimed at ensuring smooth regulatory acceptance [SingTel holds 30% in Bharti Airtel] though it complicates deal valuations due to circularity. Technical, procedural, and regulatory complications are many and will take time to iron out especially if they are to carry through towards an eventual merger.
MTN operates in 21 countries in the Middle East and Africa, with Nigeria (26% of MTN’s subs base), Iran (19%) and South Africa (18%) as major markets, contributing 67% to 2008 revenues.
In the current market scenario, Bharti is paying 36% premium to MTN’s last traded price. Our estimates show that the transaction effectively values MTN at US$34.5bn, a 30% premium to its market cap on 22 May closing price. However, the implied EV per subscriber valuation of MTN at US$367 compares with US$381 for Bharti at current prices.
The final deal is not yet sealed so stay tuned as and how talks proceed.