MUMBAI (Reuters) - Reliance Communications (RLCM.BO), Indias No.2 mobile operator, has started exclusive talks with South Africas MTN Group (MTNJ.J) that could create a 63 billion telecoms giant, knocking shares in both companies down sharply.
Reliance Communications was quick to fill a void left after its bigger domestic rival, Bharti Airtel (BRTI.BO), pulled out of talks at the weekend aimed at taking control of MTN, sub-Saharan Africas biggest mobile operator.
A source with knowledge of the negotiations said Reliance would not be looking for the same kind of structure in the deal.
"Reliance Communications and MTN Group have agreed to enter into exclusive negotiations with respect to a potential combination of their businesses," Reliance said in a statement on Monday, adding there would be a 45-day exclusivity period for talks, during which neither party can talk to any other entity.
Reliance Communications Chairman Anil Ambani, one of Indias richest men, said a deal with MTN could "provide investors, customers and the people of both companies a global platform for exponential growth."
MTN had 68.2 million subscribers as of March, compared with Reliance Communications 48 million.
"Reliance Communications is smaller than MTN, and lacks the financial muscle for a takeover, but it is not going to want to be a subsidiary, either," said Ravi Dodhia, a telecoms analyst at KR Choksey Securities.
He said the two firms were instead likely to create a new company, with MTN taking a 51 percent stake.
Bharti said on Saturday it called off talks after MTN proposed a new structure which it said would have seen the Indian firm become a unit of MTN.
Harit Shah at Angel Broking said Reliance and MTN might swap shares, as the foreign holding in Reliance Communications was considerably lower than in Bharti Airtel, a factor that was seen as a possible roadblock for Bhartis attempted deal.
Foreign ownership of Indian telecom firms is capped at 74 percent, and Bharti is 30.5 percent owned by Singapore Telecommunications (STEL.SI).
RELIANCE, MTN SHARES FALL
Shares in Reliance Communications, valued at about 28 billion, fell as much as 5.7 percent to their lowest since May 12 on concerns about the cost of a deal.
In Johannesburg, shares in MTN, which has a market capitalization of about 35 billion, fell as much as 7.6 percent to 145.11 rand, their lowest since April 30.
"The market is disappointed that MTN has called off its talks with Bharti Airtel," said Garth Mackenzie, a trader at BOE Stockbrokers in Johannesburg.
"The market was anticipating a buyout from Bharti of MTN of a controlling stake. Naturally, Bharti would have to pay a premium to the share price if shareholders were going to give up their shares," he said.
Media and analysts had speculated that Bharti Airtel was eyeing a 51 percent stake in MTN or engineering a merger in a deal that would value MTN at up to 50 billion.
"The reason (Bharti) investors didnt like talk of the Bharti-MTN deal was the price, and now Reliance Communications will have to pay a price that is at least equal to, or higher than what was being talked about," said Arun Kejriwal at investment advisory KRIS.
Shares in Bharti rose as much as 4.2 percent to 872 rupees, their highest since May 6, when they slumped more than 5 percent on news that Bharti was in talks with MTN.
AFRICA INTEREST
Reliance Communications bought Ugandan Anupam Global Soft Ltd in February, saying it would launch mobile services in Uganda by the end of 2008 and spend up to 500 million over five years to build a telecom network there.
Last year, it lost the 11 billion race for majority control of Indias third-largest mobile provider to Vodafone Plc (VOD.L), but has made several smaller overseas acquisitions, including a UK-based WiMax operator of 4G services.
Indias wireless market grew 25-fold between 2002-07, ringing up record profits for telecom firms, but that growth is expected to slow as the percentage of the population with a mobile phone tops 40 percent by 2010 from 22 percent now.
In contrast, MTN is present in some of the worlds most lucrative markets, such as Nigeria, Cameroon, Ghana, Zambia and Uganda, and has said it is keen to pursue more expansion opportunities in emerging markets.
Separately on Monday, Reliance Communications said its Reliance Globalcom unit bought UK-based global managed network services provider Vanco for 77 million.
(Additional reporting by Hiral Vora in MUMBAI and Gugulakhe Lourie in JOHANNESBURG)
(Editing by John Mair and Jean Yoon)
Reliance Communications was quick to fill a void left after its bigger domestic rival, Bharti Airtel (BRTI.BO), pulled out of talks at the weekend aimed at taking control of MTN, sub-Saharan Africas biggest mobile operator.
A source with knowledge of the negotiations said Reliance would not be looking for the same kind of structure in the deal.
"Reliance Communications and MTN Group have agreed to enter into exclusive negotiations with respect to a potential combination of their businesses," Reliance said in a statement on Monday, adding there would be a 45-day exclusivity period for talks, during which neither party can talk to any other entity.
Reliance Communications Chairman Anil Ambani, one of Indias richest men, said a deal with MTN could "provide investors, customers and the people of both companies a global platform for exponential growth."
MTN had 68.2 million subscribers as of March, compared with Reliance Communications 48 million.
"Reliance Communications is smaller than MTN, and lacks the financial muscle for a takeover, but it is not going to want to be a subsidiary, either," said Ravi Dodhia, a telecoms analyst at KR Choksey Securities.
He said the two firms were instead likely to create a new company, with MTN taking a 51 percent stake.
Bharti said on Saturday it called off talks after MTN proposed a new structure which it said would have seen the Indian firm become a unit of MTN.
Harit Shah at Angel Broking said Reliance and MTN might swap shares, as the foreign holding in Reliance Communications was considerably lower than in Bharti Airtel, a factor that was seen as a possible roadblock for Bhartis attempted deal.
Foreign ownership of Indian telecom firms is capped at 74 percent, and Bharti is 30.5 percent owned by Singapore Telecommunications (STEL.SI).
RELIANCE, MTN SHARES FALL
Shares in Reliance Communications, valued at about 28 billion, fell as much as 5.7 percent to their lowest since May 12 on concerns about the cost of a deal.
In Johannesburg, shares in MTN, which has a market capitalization of about 35 billion, fell as much as 7.6 percent to 145.11 rand, their lowest since April 30.
"The market is disappointed that MTN has called off its talks with Bharti Airtel," said Garth Mackenzie, a trader at BOE Stockbrokers in Johannesburg.
"The market was anticipating a buyout from Bharti of MTN of a controlling stake. Naturally, Bharti would have to pay a premium to the share price if shareholders were going to give up their shares," he said.
Media and analysts had speculated that Bharti Airtel was eyeing a 51 percent stake in MTN or engineering a merger in a deal that would value MTN at up to 50 billion.
"The reason (Bharti) investors didnt like talk of the Bharti-MTN deal was the price, and now Reliance Communications will have to pay a price that is at least equal to, or higher than what was being talked about," said Arun Kejriwal at investment advisory KRIS.
Shares in Bharti rose as much as 4.2 percent to 872 rupees, their highest since May 6, when they slumped more than 5 percent on news that Bharti was in talks with MTN.
AFRICA INTEREST
Reliance Communications bought Ugandan Anupam Global Soft Ltd in February, saying it would launch mobile services in Uganda by the end of 2008 and spend up to 500 million over five years to build a telecom network there.
Last year, it lost the 11 billion race for majority control of Indias third-largest mobile provider to Vodafone Plc (VOD.L), but has made several smaller overseas acquisitions, including a UK-based WiMax operator of 4G services.
Indias wireless market grew 25-fold between 2002-07, ringing up record profits for telecom firms, but that growth is expected to slow as the percentage of the population with a mobile phone tops 40 percent by 2010 from 22 percent now.
In contrast, MTN is present in some of the worlds most lucrative markets, such as Nigeria, Cameroon, Ghana, Zambia and Uganda, and has said it is keen to pursue more expansion opportunities in emerging markets.
Separately on Monday, Reliance Communications said its Reliance Globalcom unit bought UK-based global managed network services provider Vanco for 77 million.
(Additional reporting by Hiral Vora in MUMBAI and Gugulakhe Lourie in JOHANNESBURG)
(Editing by John Mair and Jean Yoon)
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