>BHARTI AIRTEL (TATA SECURITIES)

Bharti & MTN merger - Where is the value?

Bharti has renewed its talk with MTN for a possible partnership with the intent of an eventual meeger of the two companies. The two companies have exclusivity until 31st July 2009 to conclude deal. Upon the conclusion of the deal, Bharti will hold 49% of MTN, while MTN would hold 25% of Bharti and MTN shareholders would hold 11% of Bharti through GDR issue. As per our estimates, Bharti is paying a premium of 44% to MTN's Friday's closing price.

KEY HIGHLIGHTS

• Merger of Equals
• Acquisition to be EPS dilutive in short term
• Synergies, if any, will be back ended
• We see little value
• Valuation

PROPOSED DEAL STRUCTURE
■ Bharti will acquire 36% stake from existing shareholders of MTN (673 mn shares) for a consideration of ZAR86 per share (totalling to USD 6.9bn) and 0.5 Bharti GDRs for every MTN share held (issue of 336mn Bharti GDRs)

■ MTN will issue 467mn additional shares to Bharti such that Bharti would hold 49% of the post-issue shares. Bharti will hold 1140mn shares of MTN; MTN's equity will go up from 1,869mn shares to 2,336mn shares.

■ Bharti will issue 745mn new shares to MTN such that MTN would have 25% of Bharti, post the deal. Bharti equity will be increased to 2,979mn shares. MTN would also pay cash of USD2.9bn to Bharti.


To see full report: BHARTI AIRTEL