Euphoria over MTN-Bharti transaction wanes in South Africa

By Fakir Hassen, IANS,

Johannesburg : Analysts here, who were initially enthusiastic over the transaction between mobile phone giants Bharti Airtel of India and South Africa’s MTN, have turned cautious after share prices of both companies dropped Wednesday.

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MTN fell 4.46 percent and Bharti went down for the second consecutive day May 26, following an announcement Monday by the two that they were in discussions for a cross-ownership deal that could see the biggest mobile giant straddling Africa, India and the Middle East.

Analysts Tuesday were trying to figure out whether the transaction presented any value for MTN shareholders, the Afrikaans daily Beeld reported.

According to Richard Hurst, head of Africa Communications at the Industrial Development Corp, the transaction could lead to long-term higher earnings for MTN shareholders.

“But in the short term, it probably does not look as good as it should be,” Hurst told Beeld.

Another unnamed analyst expressly called for MTN and Bharti to review the conditions of the transaction to obviate concerns over the insecurity stemming from the cross-shareholding agreement that has been proposed.

MTN will get a 25 percent stake in Bharti for $2.9 billion and through issuing new shares equal to 25 percent of its share capital.

Bharti proposes to buy 36 percent of the South African company by offering shareholders half a Bharti share and 86 rands (Rs.497) for each MTN share, a premium of about 35 percent on MTN’s closing price May 22 of 119 rands (Rs.687).

But analysts said the value of MTN shares could be diluted through issuing new shares.

They also expressed concern that if the Bharti scrip continues falling, the offer to MTN shareholders will also decrease.