Global Insight Perspective | |
Significance | Had the proposed transaction materialised, it would have created one of the world's largest mobile operators with a combined subscriber base of over 100 million. |
Implications | The transaction appears to have been undermined by legal action brought against Reliance Communications by Reliance Industries over the right of first refusal to acquire shares in the operator. |
Outlook | MTN could well continue to look for other opportunities for foreign expansion, particularly in Asia, given that it was willing to negotiate at length with India's first and second-largest operators in Bharti Airtel and Reliance Communications. |
A joint statement issued by MTN and Reliance Communications (RCom) said that the two parties were unable to conclude the transaction owing to "certain legal and regulatory issues". As a result, "it has been mutually decided to allow the exclusivity agreement to lapse". MTN entered into exclusive negotiations with RCom at the end of May 2008 for a period of up to 45 days, after it ended discussions over a possible transaction with fellow Indian operator Bharti Airtel (see sub-Saharan Africa: 26 May 2008: MTN Ends Talks with Bharti, Opens New Discussions with Reliance). The two parties then extended negotiations until 21 July 2008 (see Sub-Saharan Africa: 9 July 2008: MTN Extends Negotiations with Reliance).
The two parties were reportedly at an advanced stage of talks on a share-swap deal, according to Agence France-Presse (AFP), when RCom announced on Friday (13 June) that Reliance Industries (RIL) was attempting to assert a right of first refusal to buy the controlling stake in RCom, which in turn disrupted the talks. The intervention of RIL in the discussions apparently stems from a feud between two brothers—Mukesh Ambani, the head of RIL, and Anil Ambani, the head of RCom—according to AFP. The Wall Street Journal reports that arbitration proceedings were launched by RIL last week against RCom over its claim of right of first refusal.
In a press release issued by Reliance Infocomm on 13 June, the operator said that “in a mala fide effort to disrupt the talks, Reliance Industries Ltd (RIL), part of the Mukesh Ambani group, has sent a communication to MTN Group, making a false claim of an alleged right of refusal to buy the controlling stake in Reliance Communications Ltd.” The statement went on to say that “RIL’s claim is legally and factually untenable, baseless and misconceived … Reliance Communications dismisses RIL’s claim with the contempt it deserves” (see Sub-Saharan Africa: 16 June 2008: Reliance Communications Faces Domestic Hurdle from RIL over MTN Transaction).
Outlook and Implications
MTN could well continue to look for other opportunities for foreign expansion in Asia, and in particular in India, given that it was willing to negotiate at length with the first and second-largest Indian operators. MTN is now the largest mobile operator in Africa by some stretch, with a total of 68.213 million subscribers for the first quarter of 2008, representing a 54% increase on the previous year (see Sub-Saharan Africa: 25 April 2008: MTN Reports 68.2 mil. Subscribers in Q1).
The operator has expanded through organic subscriber growth and acquisition, most notably with the acquisition of Investcom in 2006 (see Sub-Saharan Africa: 2 May 2006: MTN Agrees to Acquire Investcom LLC for US$5.53 bil.). It is also now expanding rapidly in Asia, with MTN's new operations in Iran and Afghanistan reporting the fastest year-on-year (y/y) growth at 735.6% to 9.025 million subscribers and 313% to 1.462 million subscribers respectively.
Meanwhile, Rcom is the second-largest Indian mobile operator after Bharti, with 40.96 million Indian subscribers by year-end 2007. It has also embarked on a number of new foreign investments, including forays into Eastern Africa:
- FLAG Telecom, a unit of RCom, is planning the FLAG NGN System 2 submarine cable connecting eastern Africa to India as part of a global investment programme (see Sub-Saharan Africa: 21 January 2008: FLAG Telecom Awards Contract, Submarine Cable Due 2010).
- RCom acquired a public infrastructure provider and public service provider licence in Uganda through Anupam Global Soft (see Uganda: 19 December 2007: Reliance Communications Granted Telecom Licences in Uganda).
- RCom has also tried to enter the Kenyan market through unsuccessful bids for both the second national operator licence and a controlling stake in Telkom Kenya (see Kenya: 20 March 2007: CCK to Reopen SNO Tender and 24 December 2007: France Telecom Takes Control of Telkom Kenya).