Posted by: John Elliott | May 26, 2008

Indian rivalry ousts Bharti from South Africa telecoms deal

A six-year battle for supremacy in India’s telecommunications industry between the country’s two main private sector operators, Bharti AirTel and Reliance Communications, last week spilled over into South Africa and led to the collapse on Friday night of takeover talks between Bharti and MTN, a South African-based telecoms group. Strong Indian and South African nationalist sentiments also contributed to the sudden ending of the talks

During the week, Reliance – which today started formal talks – had secretly made a tentative offer to merge its operations with MTN. This appealed more to the South African company’s nationalist-oriented board than the Bharti takeover negotiated over the previous few weeks. MTN then proposed that Bharti should become its subsidiary – and that, maybe by design, led to Sunil Bharti Mittal, Bharti’s founder chairman, walking out.

MTN’s offer would have given Mittal’s family, together with SingTel, a minority shareholder in the Bharti group, a controlling stake in MTN, so they would have been the ultimate owners – but of a South Africa-based business. Mittal dismissed that as a “convoluted way of getting an indirect control of the combined entity” that “would not capture the synergies of a combined entity.” More important, Bharti’s “vision of transforming itself from a home-grown Indian company to a true Indian multinational telecom giant, symbolizing the pride of India, would have been severely compromised”

The takeover failure is a personal blow for Mittal who has been looking for a way to expand his group and saw a Bharti-led tie-up with MTN as a way of building one of the world’s largest mobile phone operators with 130 million subscribers and considerable potential for expansion in Africa and Asia. Some analysts in India say the merger was more about Mittal’s wish to establish himself internationally than about synergies, but most in the Indian business world supported his effort to build India’s first multi-national telecom company.

The collapse of the talks has done no good to MTN’s image, with jokes doing the rounds in India about politicians on its board being reluctant brides unable to consummate relationships. MTN has been courted in the past by China Mobile, Emirates Telecommunications (Etisalat) of Dubai, and Vimcom of Russia, as well as having a brief flirtation with Vodafone of Britain. Each time, MTN’s board has shied away, often on the brink of consummation, as it did last week.

But in abandoning Bharti for Reliance, MTN, which has a market capitalization of $38 billion, has made a bigger switch than it might realize in terms of business personalities. Mittal believes in building strong long-term businesses, as he has shown with Bharti Airtel. Anil Ambani, who controls Reliance Communications is a consummate deal-maker and that might lead to him accepting the reverse take-over terms rejected by Mittal. He has yet to prove himself as a long-term builder and operator of a major company, though his Anil Dhirubhai Ambani Group (ADAG) has a market capitalization of $75 billion.

Reliance’s telecoms business was started by his elder brother, Mukesh Ambani, before the two men split the Reliance Industries (RIL) group three years ago. Since then Anil Ambani has expanded the business, which is doubling its 65,000 kilometers of undersea cable linking India through the Middle-east and Europe to the US, and last month bought eWave World, a UK-based wireless broadband company. But he has no long-term track record

He has also hit the headlines for other reasons. In January Reliance Power, which he controls, raised $3 billion in India’s biggest ever initial public offering, even though the company has no completed projects and no income stream. A month later, after the shares crashed, he gave shareholders three additional shares for every five they’d bought, in an attempt to prop up the group’s investor reputation. Last week he announced he was looking at entering the U.S. movie industry by financing and developing Hollywood film deals that some reports put at a total of $10 billion.

Analysts are now asking whether Anil Ambani is simply looking for publicity with this bid, as he was suspected of doing when he bid unsuccessfully against Vodafone last year for control of India’s Hutchison Essar telecoms group. He has booked 45 days of exclusive negotiations with MTN, so the market is watching to see whether the company again becomes a reluctant bride.


Responses

  1. John,
    I think you have missed the point in this article. You have midway just digressed from the main idea
    – of how competition is getting dangerously close to crossing the line between ethical and unethical means.

    You seem to go back to one of the older issues of Reliance Power’s frigid past (you’d already covered that in an earlier post, in the recent past)

    I would suggest as an international journalist of repute, you should stick to stating facts, and avoid passing judgements.

  2. If a company is working on a deal to boost the long term prospects of the company to domintae the telecom space, then the owners will work to get the deal through. But clearly the Reliance group first talks to the press. Definitely the long term prespective is misplaced. Also what are MTN’s plans? is the outlook short term or is it long term dominance? Bharati clearly did not see value in this and has stepped out? It’s not just the acquisition,but what next?- that requires answers. There are examples glore of acquisitions going sour.

  3. Good blog. Should have also brought out the differing styles of operation between Old money (Tata/Birla) and New Money (Reliance/Bharti)

    I guess any reader of this blog will realise the contrast between the Tatas and the rest of the Indian industry. The Tatas would have had this done and sealed in their quiet and effective manner before speaking to the press. See the contrast?


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