Sometimes mergers are made in the media, where they can as easily be dispatched by the same media, without ever having happened. It’s perhaps not fair to suggest that this is entirely true of the talked up deal between India’s Bharti Airtel and South Africa’s MTN, but there is certainly something of the media in it.
The logic of Bharti being a part of the same organization as one of the dominant forces in cellular across Africa is inescapable, both companies operate successfully in low margin markets, but given that MTN has twice the revenue of Bharti, (but because it is growing more slowly, the same market capitalization) it has to be difficult for MTN management to swallow a merger driven by the other party.
Initially Bharti was hinting to its own Indian based press that a deal was not only on the cards, but was virtually done. The New York Times reported that both teams’ bankers had reached terms, before the MTN Board sabotaged the deal by suggesting that it should be the other way around, with Bharti being acquired by MTN. Now obviously that was never going to work because the Bharti team had at least come up with the idea and made the approach ‘ and where was the MTN vision to drive such a deal?
MTN must have known that its own investors would back the idea that South Africa should have a global champion, but never back a deal whereby it became a vassal of a late to market cellular player from India.
This in itself creates a problem for Bharti and MTN about how they proceed without being taken over and instead achieving their own scale. Bharti has to begin less ambitiously, taking over operations that can swell its rate of growth ‘ something tough to achieve now that companies like Vodafone and Orange are focused on growth in third world markets ‘ and then move on to conquering entirely different continents.
But similarly the same applies to the major Chinese cellular operators, not just the cellular operators. Already we have heard that African Mobile TV operators are looking at the Chinese hybrid satellite model, and may import CMMB STiMi to Africa. Chinese interests have already been held at bay by MTN, which were courted by Chinese operators long before Bharti got involved. In the end MTN may fall to one or the other, but it seems more likely that MTN will be one day acquired by one of the major multinational cellular operators that can give its shareholders access to more mature, and more highly valued stock markets ‘ such as in the UK, Germany, France or Spain (but not yet the US).
Bharti will no doubt grow to the point where acquisition of MTN is no longer a tail trying to wag the dog, but the two or three years that will take might see a bigger shift towards global cellular consolidation which means that both companies have their options narrowed.
Bharti said that it would look for more overseas opportunities, using mostly US money, but we fear that it may meet the same issues time and again.