Mr Mittal, please don't do it again next year

It is the second time that merger talks between India's telecom major Bharti Airtel and South Africa's communication provider MTN are meeting with a debacle. In May 2008, when the deal talks first began, MTN insisted on buying a majority share and having Bharti as its subsidiary company. But Sunil Mittal would have rather closed down all his businesses.
And after one year, the history is repeating. Four months back, two parties again came and sat around a table, perhaps praying that the other guy forget the last year's insult. After a lot of day dreaming and castle-building in the industry and media circle, the talks are again packed off – this time too a demand by MTN for it to be duel-listed in India turned a damp squib as India government was not ready to 'change its laws overnight.”
It is obvious that Bharti had found it much worthwhile to pursue a futile exercise in two consecutive years. For, had the deal been a success, the merged entity would have become the world's third largest telecom service provider behind China Mobile and Vodafone, with a subscriber base of 200 million and a revenue of about $20 billion.
According to the agreement, though failed, the deal was valued at around $23 billion. Bharti was to buy 36 per cent of MTN’s existing equity from the company shareholders. For this, Bharti was supposed to pay in a combination of cash and share – it was to shell out $10.34 per MTN share totaling $7.03 billion, besides issuing half a share in the form of Global Depository Receipts (GDR) for every MTN share it gets (about 34 crore shares worth roughly $6 billion). The GDR would have been listed on the securities exchange operated by JSE Limited, South Africa.
On the other side, MTN was to buy 25 per cent of Bharti Airtel’s post-deal equity through fresh issue of Bharti shares. MTN would pay $2.89 billion in cash and issue fresh MTN shares to Bharti equivalent to 25 per cent of MTN's existing equity (worth $7 billion). At the end , as the deal was envisaged, Bharti would hold about 48.8 per cent of MTN’s expanded equity, while MTN would keep 36.4 per cent of Bharti's enhanced equity. And of course, Bharti was supposed to pay MTN a net cash amount of $4.14 billion to make sure that it buys more shares than it sells in the deal.
This created an apprehension among Bharti stakeholders that if the company had to raise a $4 billion, it would be forced to go a loan-route, but a relief was that MTN was not a loss making firm and it might have a healthy balance sheet.
And the structure of the deal had also left some questions on the identity protection unanswered. By releasing a media statement, Bharti had sought to dispel the confusion that may have arisen on the governance front in case the deal was signed. It said that had the deal been through, Bharti would have held substantial participatory and governance rights in MTN enabling it to fully consolidate the accounts of MTN, while MTN's economic interest in Bharti would be equity accounted and would have appropriate representation on the Bharti Board.
But there were still ambiguities. How would the merged entity be named? It would be more or less like naming a baby born to a couple representing two religions as nobody owns a controlling stake in the deal.
The company's clarification in this regard apparently did not go down well with the investors as that was seen in surging stock price of Bharti immediately after deal talks were called off.
Let's hope Mittal would not be repeating the history in 2010 too.