Bharti, MTN scrips soar on collapse of deal talks

NEW DELHI: Shares of India’s Bharti Airtel and South Africa’s MTN witnessed what analysts termed a ‘relief rally’ on Thursday, a day after both companies called off the proposed $23-billion merger. The Bharti stock surged nearly 12% in morning trade before closing at Rs 434.8, up 3.9% from Wednesday’s close, with investors cheering the break-up of the deal as they feared higher cash outflow and earnings dilution of the Indian telecom giant.

The company’s stock had been underperforming in the market in the past four months when both companies were in exclusive talks, and investors were afraid that the deal could increase the debt on Bharti’s books, leading to a higher interest burden. “We believe that Bharti’s stock price could move up by 5-10% in the near term,” said UBS Investment Research in a note.

MTN, whose shares crashed on Wednesday, resulting in the Johannesburg Stock Exchange suspending trade, gained 4.7% to 127.90 rand at 6 pm (India time) on Thursday, its biggest gain since May 25.

However, less than 24 hours after both companies called off talks over the South African government’s inability to accept the deal in its current form, fresh hopes were raised that the strategic alliance may be salvaged. MTN’s second-largest shareholder, M1 Group, on Friday hinted that both telcos may work towards resolving regulatory hurdles and restarting talks. “With time, I am confident we’ll overcome any regulatory hurdles and achieve our long-term objectives,” Azmi Mikati, chief executive officer of M1 Group, told international wire agencies. “There was lot of hard work invested in trying to combine these two entities into what would have been the leading emerging markets mobile operator,” he added.

A Bloomberg report also quotes a fund manager at Investec Asset Management, which holds MTN stock, as saying that “the deal is not dead and buried by any means”.

“These regulatory issues can take a long time. It doesn’t mean they can’t work behind the scenes — it just means exclusive talks are over,” the report quoted Investec’s Rob Forsyth. But analysts in India are of the view that Bharti is unlikely to resume talks with MTN immediately.

Bharti may eye smaller targets

Instead, it could look at smaller targets such as Kuwait’s Zain, Egypt’s Orascom, Dubai’s Warid Telecom and even Luxembourg head-quartered Millicom, all of which have operations across Asia and Africa, and are looking for strategic partner. Link...