Saturday, October 11, 2008

South Africa...

...a tourist spot. Not much more for Bharti!
“Sour grapes!” Just a few days back, the mobile behemoth had bid for a 51% stake in South Africa’s largest telecom player, MTN at $21.7/share, implying a fair price of $20.7 billion (and a premium of 20% higher to MTN’s shareholders). A $50 billion dream-deal (in-principle a Bharti-controlled structure as decided on May 26, 2008) was in the making. Two weeks later, the dream has literally become “sour grapes”! Surely, Bharti has done more than just read BCG’s July 2007 report that proved “how M&As valued beyond $1 million destroy twice as much value”! So, what’s there in the secret cellar that urged Bharti to back out?

The primary reason – lack of synergies. As a spokesperson from the company justifies, the collapse of the deal was because “this convoluted way of getting an indirect control of the combine would have been just a compromise for minority shareholders of Bharti. Moreover the synergies were not real!” It was also about the price here, which didn’t afterall appear ‘fair’! In order to seal the deal, the company had to procure ‘internal’ funds and leverage its balance sheet to a mind-boggling $40-45 billion – huge for a grossly overleveraged company (which has a debt/equity ratio of a dangerous 43.2!). Finally, with Singtel refusing to pay-up $10 billion, Bharti had no means to make procurement of funds a safe bait.

Therefore, the deal falling flat means Bharti still has ‘young’ international intentions left. As Santana Krishnan, Analyst, Spark Capital opines, “With the deal failing, its balance sheet looks good. But Bharti may soon roll out their operations in other emerging markets.” On news of the same, Bharti’s share price on BSE rose by 3.1% to touch Rs.890.95 (after a fall of 10% since the deal was announced); surely a good omen!

But there’s more to the war left. Post Bharti’s exit, speculations are rife that the $42 billion-worth RCom Ltd. is readying itself to make a $20 billion bid for the African elephant. Whoever gets MTN, one thing’s for sure – South Africa has a telecom CAGR of 22.5% and a high penetration of 70%; a sure inferior investment compared to India (CAGR of 60% & 22% penetration)?! Wonder what’s the logic in risking billions in sour grapes; or do they make better wine?!

For Complete IIPM Article, Click on IIPM Article

Source :
IIPM Editorial, 2008
An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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