Indian billionaire Anil Ambani is ready to pay a “significant premium” to win effective boardroom control of MTN in the complex merger plan currently being negotiated by the South African mobile telecom group and Mr Ambani’s Reliance Communications, FT Alphaville has learned.
Stock market operators in Johannesburg and Mumbai may have misunderstood the terms of the putative deal - presented as an MTN takeover of Reliance, leaving Mr Ambani with a minority stake in the enlarged entity.
There are actually two options on the table. Here’s the nitty-gritty on a potential $70bn merger:
The 100 per cent take out
Reliance, code-named Rome in the talks, will make a straightforward cash and shares offer for MTN, code-named Madrid. Discussions on the mix have centred around a ratio of 65 per cent in Reliance stock and 35 per cent cash.
Phuthuma Nhleko, president and chief executive of MTN, would become chief executive of the enlarged company for at least three years, with MTN chairman Cyril Ramaphosa becoming co-chairman of the new group alongside Mr Ambani for a period of 12 months. Thereafter, Mr Ambani (code-named Apollo) would become sole chairman and Mr Ramaphosa would drop down to vice chairman.
The enlarged Reliance MTN would continue to be an Indian company, but with a secondary listing in Johannesburg.
The 34.9 per cent structure
Alive to South African political sensitivities, the second merger plan under discussion would see MTN retain its South African identity.
MTN would acquire 51 per cent of Reliance from Mr Ambani, who currently controls about two thirds of Reliance, paying in paper. The exchange ratio set would incorporate a “premium deal price,” valuing MTN stock significantly above the Rand 146 level at which it was trading in Johannesburg on Thursday.
MTN would then make a cash tender offer for 20 per cent of the publicly-held stock in Reliance, a minimum requirement under Indian takeover rules. This is not expected to be at a substantial premium to the current Reliance market price.
Simultaneously, Mr Ambani would buy enough shares in MTN from existing holders at the agreed “premium deal price” to take his direct holding in the South African company to 34.9 per cent.
Crucially, a series of agreements would also be struck with key MTN shareholders whereby no third party was able to challenge Mr Ambani’s effective control of the group.
The Indian entrepreneur wants to put these control agreements in place without triggering an ‘acting in concert’ declaration from regulators.
While Mr Ambani will have economic ownership of little more than a third of the enlarged business, he is insisting on effective control in return for an as-yet-unspecified premium valuation on MTN.
In return, Phuthuma Nhleko, president and chief executive of MTN, has been told he would be asked to lead the enlarged company for at least a further five years, although Mr Ambani would have control over other senior executive appointments.
Respective stock market listings in New Dehli, Mumbai and Johannesburg would be maintained, with a secondary listing in London planned for the future.
The two companies this week began an exclusive negotiation period that will last up to 45 days. It follows the decision by Bharti Airtel, India’s biggest mobile operator, to walk away from a possible deal with MTN.
Related links:
MTN plans reverse takeover of Reliance - FT
Reliance woos elusive MTN - FT analysis
Neil.hume@ft.com
(As told to Paul Murphy)
