"DIFFERENT TAKES ON PARTNERSHIPS"

RCOM, MTN talk swap
Kausik Datta MUMBAI

ANIL Ambani’s Reliance Communication (RCOM) and South African telco MTN are locked in negotiations to decide the shareswap ratio at which Mr Ambani will transfer his stake in RCOM to MTN in return for a stake in the latter. Although both the parties are learnt to have agreed on the broad contours of the deal — which will result in RCOM promoter ADAG emerging as the single largest shareholder in MTN and the foreign company becoming the holding firm of the Indian telco — they are yet to decide the swap ratio.

It is learnt that Mr Ambani wants the ratio to be 0.66:1 (66 MTN shares for 100 RCOM shares) while the MTN management is asking for 0.51:1.

Sources said both the parties have started the due diligence exercise. A top team from RCOM is now stationed in MTN’s headquarters in Johannesburg. They are expected to be back in Mumbai on Tuesday. In addition to the shareswap ratio, the parties are also discussing the structure of the management of the entity post merger. It is learnt that they are in favour of keeping the existing management unchanged in most geographies. However, it is certain that Mr Ambani will join the MTN board as either chairman or co-chairman. Phuthuma Nhelko is expected to continue as MTN CEO. Cyril Ramaphosa, a famous personality in the world of South African business and politics, is MTN’s chairman.

Depending on the share-swap ratio and the response to the open offer, which MTN is expected to launch for RCOM shareholders, Mr Ambani may need to fork out some money. He is reportedly in talks with private equity firms including Carlyle, Blackstone and Apax Partners. Deutsche Bank is the financial advisor to RCOM for this deal. Its other advisors are believed to be Lazard, Lehman Brothers and JP Morgan. Lazard’s head of UK operations, Ken Costa, is leading the RCOM pack. Two weeks ago, MTN had signed an exclusive pact with RCOM, which means that the foreign company will not initiate merger talks with any other suitors in the next 45 days. MTN had entered into this pact after Bharti Airtel walked away from a similar arrangement describing it as a convoluted one.

66:100
SHARE-SWAP RATIO DEMANDED BY ANIL AMBANI*

51:100
SHARE-SWAP RATIO SOUGHT BY MTN MANAGEMENT**

28-34%
ANIL AMBANI’S LIKELY STAKE IN MERGED ENTITY

35%
THRESHOLD FOR TRIGGERING OPEN OFFER IN S AFRICA MTN likely to end up with 1/3-rd of RCOM’s equity

THEbroad contours of the deal, as reported by ET, suggest that ADAG may hold one-third stake in MTN, against its 66% stake in RCOM. However, the exact shareholding of these two companies would depend on this share-swap ratio and the response of the open offer.

MTN would end up getting anything between 63% and 74% of RCOM’s equity, including the stake garnered buy it through the open offer, and Mr Ambani would give away anything between 43% and 63% stake. Depending on the ratio, Mr Ambani would end up getting anything between a 28 to 34% stake in MTN.

If he ends up at the lower end of the band, he may up his stake by directly investing money in MTN. Ultimately, he would hold close to 35% in MTN.
Under South African norms, any acquisition beyond 35% requires an open offer which is not currently under consideration.

If the deal goes through, the combined entity will have a market capitalisation of $66 billion and operations in 23 countries