Bharti Airtel has aspirations of becoming a telecom leader of the emerging countries by placing a bid of $19 billion for 51% stake in Johannesburg based MTN, a telecom company having operations in 21 countries of Africa, Middle East and Europe.
The bid would value MTN at $37 billion, a stifle more than its market capitalisation of $35.6 billion. However, according to FT, MTN would like the bid to be atleast 10% more than the current one.
Bharti has a market cap of $40 billion and subscribers nearly equal to MTN subscribers and the bid would give them a global expansion and take advantage of diversifying its operations to ward off slowdown in different markets.
But the road for Bharti won’t be easy since it has to first compete with other bidders such as Reliance Communications, Vodafone and China Mobile who might be willing to pay a higher price.
Also, MTN would be reluctant to sell 100% stake to foreign bidders owing to sovereign concerns. The bid may also put a strain on Bharti’s stock due to possible equity dilution and debt leverage to meet out buyout obligations.
However, Bharti has a low debt level which would help it to borrow further easily. Bharti’s shareholder, Singtel if it decides to partner Bharti in the bid, then also it may work for the latter’s advantage.
The deal will help Bharti in becoming a low cost integrated player since it can deal on better terms with its partners and as such bring in furhter low cost in the business for India as well as African countries.