Saturday, December 22, 2012

India’s most high profile sibling rivalry

It’s slated to be the largest non-pharma deal this year (till date), if successful. But the Bharti-MTN deal is much more than that, for it can potentially be a major game changer in corporate India’s most high profile sibling rivalry – that of the Ambani brothers

Guess who benefited from this public demonstration of the bitter spat and subsequent split? Sunil Bharti Mittal and Airtel because Mukesh and the thousands and thousands of his employees switched over to Airtel connections!

The reverberations of that ‘switch’ are being felt even today; even as the second instalment of the UPA regime settles down to govern the country. You guessed it right again. We are talking about the latest bombshell that was dropped by Sunil Mittal recently when Bharti announced a ‘New Deal’ (You can call it an agreement, a merger, a reverse merger, an acquisition or whatever word takes your fancy!) with MTN, the South Africa-based telecom giant. An excited Sunil Bharti Mittal has said on that deal, “We are delighted at the prospect of developing a partnership with MTN to create an emerging market telecom powerhouse. This opportunity also represents a first of its kind in developing an Indian-African initiative that would serve as a shining example of South-South cooperation.”

One year ago, it looked as if Anil Ambani was all set to steal the thunder from Sunil Mittal when ‘agreement’ talks between MTN and Bharti collapsed and Reliance Infocom emerged as the new and favourite suitor. One year down the road, you could say that the wheel has turned full circle and the lead established by Sunil Mittal and Airtel as the unquestionable number one telecom player from India now looks unassailable.

Some simple facts – most of them known to you by now – will establish why Sunil stands taller than Anil. The $23 billion deal – the largest non-pharma deal in the world in 2009 so far – will create an entity that will automatically become the fourth largest mobile service provider in the world with more than 200 million subscribers. Just recently, when Airtel had announced celebrations to mark the accomplishment of a 100 million subscriber base, Sunil Mittal had already hinted to this magazine (see exclusive interview) that the 200 million milestone will come far more quickly. If the deal goes through – as most analysts and insiders expect it to – what Sunil had hinted at will have already happened! And it will happen thanks to a mind bogglingly complex ‘agreement’ that will involve both cash and fresh equity. Once the deal goes through, Bharti will hold slightly less than 50% of MTN equity while MTN, in turn, will hold a 36% ‘economic interest’ in Bharti. The term ‘economic interest’ is jargon being bandied about right now because there is still some confusion about how much equity foreign investors can hold in an Indian telecom entity. As of today, foreign investors, including the largest shareholder Singtel, hold almost 74% of the equity in Bharti – the limit allowed as per existing rules.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
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