• Tweet

• Tweet

The biggest Indian deal ever was not meant to be. If it were successful, it could have been a game-changer for Bharti Airtel, already the largest Telecom service provider in India. It would have become the largest in the Afro-Asian region & 3rd biggest in the world. And Sunil Mittal’s dream of becoming the largest telecom service provider in the world would have been even closer.

So what exactly went wrong?

After months of due diligence and talks between Bharti and MTN, after countering a host of issues, the deal couldn’t go through because of the ‘Structural issues’ as stated by the South-African government. It is believed that the main problem of the South-African government with the deal was due to the problem with dual listing.

What is dual listing and what was the problem in the stocks getting listed in two exchanges?

Dual listing is the provision by which a company can be listed in the stock exchanges of two countries. If the dual listing of the Bharti-MTN was approved, both Bharti and MTN would have been listed in the stock exchanges of India and Johanessberg.

This would have helped both the companies to retain their identities. While Bharti was not very rigid about retaining the identity, MTN was.

Presently dual listing is not allowed in India. The Indian government would have had to change a great deal of the company’s law acts in order to fit in this deal. That obviously didn’t happen.

Also, valuation wise it seemed to be a better deal for Bharti than for MTN.

So finally the deal didn’t go through, resulting in all the due diligence by both parties to nothing but zilch.

Quite contrary to the falling out of the deal, the Indian markets cheered this failure with the Bharti stocked closing the following day with a 5 % gain. Brokerage houses and investors felt it was a positive outcome. The reason for the stock price jump was attributed to the fact that Bharti wouldn’t have to take a huge debt on it’s balance sheet due to the acquisition failure.

But, shortly after, the street realized the long term benefits that the deal would have brought to Bharti. Suddenly it seemed there is not enough scope for Bharti to grow in the long term.

In a matter of days the Bharti stock plummeted from the Rs 440 odd levels to Rs 340. A drop of 25%, which is usually unlikely of a stock like Bharti which has a very low Beta.

The Bharti effect has cascaded to other subscribers like RelCom, Tata Tele etc. Though there is another reason for this – The aggressive price war that all the telecom providers seem to be waging amongst themselves.

Now, it remains to be seen how Bharti and Sunil Mittal chalks out a robust plan for the future of the company. A plan that will take it to levels that it’s leader envisions and it will have to take on a vast number of competitors to emerge as the winner. Whoever wins or loses the battle, the customer will be the ultimate beneficiary.

We will definitely be watching these developments closely.

Related older posts:

Capitalism -vs- Nationalism; what should Bharti and MTN do?

Related posts:

1. Capitalism -vs- Nationalism; what should MTN and Bharti do?
2. 3G in INDIA: Airtel’s ready – are we?
3. Tata Indicom vs Airtel vs Reliance broadbands…Reviewed.