"Anil Ambani meets Azmi Mikati to talk likely reverse merger "

12-Member RCom Team To Go To Johannesburg To Examine MTN Books; Lehman Joins RCom Squad

Kausik Datta MUMBAI


ANIL Ambani, whose Reliance Communications (RCom) is in talks with South African telco MTN for a possible reverse merger, met Azmi Mikati in London on Wednesday. The Mikati family’s investment arm M1 is the second largest shareholder in the foreign company with a 10.2% stake. Newshelf 664 is the largest shareholder with nearly 3% more than the Mikatis. A reverse merger is the acquisition of a public company by a private company, simply put.

This was Mr Ambani’s first meeting with Mr Mikati after the two companies announced last week that they “were in talks.” If successful, it would create a telecom colossus with subscribers in 25 countries. They had met once at a global investors’ summit but had never discussed a deal, said sources. At a two-and-a-half-hour meeting, Mr Mikati is believed to have expressed his support to the reverse merger of RCom with MTN. The meeting took place at Four Seasons Hotel in London.

Last week, Mr Ambani had met Phuthuma Nhelko, CEO of MTN and a beneficiary of Newshelf 664. Sources said that both have agreed to the broad contours of the deal, which suggest that Mr Ambani will emerge as the single largest shareholder of MTN with almost one-third stake while his RCom will be a subsidiary of MTN. They have also discussed the management structure of the combined entity, post the deal.

Now, with Mr Mikati favouring the deal, the finalisation of the complex transaction, which needs regulatory approval from several authorities in a handful of countries, hinges on the pricing.

Both the parties are learnt to have asked for ‘control premium.’ RCom is asking for control premium as it will eventually become a subsidiary of MTN while the foreign company’s demand for it is based on the argument that it will cede control to Mr Ambani.

Meanwhile, more advisors are joining the RCom team, the latest addition is believed to be Lehman Brothers. RCom’s advisory team is led by Ken Costa, a veteran investment banker and chairman of Lazard in the UK. Mr Costa is a legend of sorts in his field. MTN is being advised by Merrill Lynch and Deutsche Bank.

RCom is sending a 12-member team to MTN’s headquarters in Johannesburg to examine the company’s books. The team comprising three presidents namely S P Shukla, Prakash Bajpai and Punit Garg, and officials of the legal, accounts and tower business, will leave Mumbai on Thursday. They are expected to finish the first round of due diligence, as the exercise is called in business parlance, by June 9. A team from MTN is expected to visit Mumbai once the RCom representatives are back.

A foreign news agency said Mr Ambani may invite global private equity investors to join him in his bid to conclude a deal with MTN. Although there is no significant money transaction involved in the deal as he is expected to swap his RCom shares to get MTN shares, he may be benefited from the vast experience of the PE investors if he takes them on board.

If a deal as discussed by both the parties happen, MTN will launch a 20% open offer for RCom shareholders. Mr Ambani may also provide an option to his minority shareholders of swapping their shares to get MTN shares.