Bharti – Mtn No Cross Border Connection – A Different Take 30th September 2009

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My article on Bharti & MTN deal, A DIFFERENT TAKE on its ramifications for companies with in Telecom Sector and for India Inc. and telecom sector at large.

• UNFORTUNATELY END OF A PHENOMENON, WHICH IN MY VIEW COULD HAVE CHANGED DYNAMICS OF INDIA INC.

• This deal failed because a lot was at stake not only for both the companies but for both the countries as well.

• The telecom sector – exciting times ahead for large existing players having established infrastructure, not necessarily for the new-comers.

• What next for Leaders, i.e. Bharti, Reliance?

• The Bharti Scenario.

• The Reliance Com. Scenario.

• The Fear and the Optimism.


Thanking You,
Warm Personal Regards,

Vinit Tulsyan
https://vinittulsyan.wordpress.com/

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Bharti – Mtn No Cross Border Connection – A Different Take 30th September 2009

  1. 1. 1 BHARTI – MTN; No Cross Border Connection – A DIFFERENT TAKE BHARTI – MTN No Cross Border Connection A DIFFERENT TAKE on Its ramifications and on Indian Telecom Sector UNFORTUNATELY END OF A PHENOMENON, WHICH IN MY VIEW COULD HAVE CHANGED DYNAMICS OF INDIA INC. This is for the first time, I am making a specific comment on a company, Bharti Airtel i.e. India’s largest telecom company, and the reason is known to everyone. The reason for me to comment on specific companies are not because they belong to a sector I like, but in my view this deal had much bigger important strategic considerations not only for Bharti but also for INDIA INC. at large. 30th September, 2009 Bharti and MTN on the back of regulatory hurdles in both India & South Africa decide to disengage in talks for a possible M&A deal, which by far could have been India’s largest, and could have catapulted the merged entity to become the third largest telecom company in the world with operation in more than 25 countries and with more than 200 million subscriber. I do not want to get into the Vinit Tulsyan http://vinittulsyan.wordpress.com
  2. 2. 2 BHARTI – MTN; No Cross Border Connection – A DIFFERENT TAKE details of the synergies, this deal could have brought in for the combined entity, or whether this would have increased shareholders wealth going forward or not. Rather, I want to discuss about aspects, this deal could have brought, and which are much bigger in nature than the synergies enjoyed by both the companies and impacts the entire INDIA INC. I personally was hoping that the deal goes through, not only that this could have been the biggest deal for India Inc, this deal could have led to single largest FDI outflow from India and the largest FDI inflow for South Africa. This deal in my opinion had a lot of important strategic considerations at stake. 1) This deal could have given Indian Entrepreneurs a vision to go ahead in global arena and acquire companies of either similar or larger sizes. Thus the importance of India Inc on global map would have increased dramatically and companies all around the globe would have started taking Indian Corporate more seriously than ever before. This would have opened a new era in India Inc M&A story, and could have been the biggest turnaround factor for India Inc to make a mark in global business arena. 2) Integration becomes the biggest talked about factor for a company to merge with other once, both the companies decide to engage in M&A activities, and given the size of the deal, huge man-power employed by 30th September, 2009 both the companies, cultural integration (in this case there were two entirely different culture from both perspectives, i.e. Countries and Companies). And successful completion of this merger could have been one of the most talked about example on successful integration, where so much of complexities are involved on every aspect. And if an Indian company would have been able to manage this, this could have been the biggest feat ever achieved by an Indian Company. Vinit Tulsyan http://vinittulsyan.wordpress.com
  3. 3. 3 BHARTI – MTN; No Cross Border Connection – A DIFFERENT TAKE This deal failed because a lot was at stake not only for both the companies but for both the countries as well I am not going into details on whether the deal failed due to South African govt. strict stand on having a DLC (dual listed company) structure, or India’s hitch in accepting a DLC structure due to absence of full convertibility. As there are so many complexities in India for changes in law, and the complexities become even more complex when it the regulation, which needs to be changed/modified requires involvement of so many different powerful regulatory authorities and a number of ministries, acceptance by Indian Govt. to have full currency convertibility, was impossible. At the same time, South African govt. stand in my view was legitimate that no outside company having a full control or controlling stake in one of the largest companies in African continent, and that too in a sector, which is always given a strategic considerations, or sector of national importance, especially in emerging market. The telecom sector – exciting times ahead for large existing players having established infrastructure, not necessarily for the new-comers I particularly am extremely bullish on existing large telecom companies from a medium to larger term perspective, not necessarily on companies which are 30th September, 2009 entering now, or have started operations in last few months. One obvious reason for my bullish stand is the low telecom penetration within Indian geographies. The other reasons for my bullish stand on telecom sector at large are the opportunities to scale up other services such as Data carrying/transfer, IPTV, enterprises services, broadband penetration, and cross-borders data transfer apart from opportunities in value added services offered by telecom companies. The penetrations of these services are almost negligible. The voice business does Vinit Tulsyan http://vinittulsyan.wordpress.com
  4. 4. 4 BHARTI – MTN; No Cross Border Connection – A DIFFERENT TAKE not really excite me too much; within voice what encourages me is the opportunity which is at hand for large exiting telecom companies, who have already spent billions and billions of dollars for putting up pan-India or pan- world infrastructure. More than the margins earned by large existing telecom players for voice business, which in my opinion will be under pressure going forward, due to fight over market share at the expense of margins by both the exiting and the new players, leveraging through sharing the huge exiting infrastructure set up by large telecom companies will be the one which will compensate for the margins lost due to competition. What next for Leaders, i.e. Bharti, Reliance Somehow I am in dilemma over holding leaders in telecom sectors despite my bullish stance on the sector at large. This dilemma stems from my opinion over the next moves taken by both the leaders going forward. I personally believe that ambition & vision of Mr. Mittal of having a company with pan-world presence through tapping markets which are un-explored and provide an opportunity to scale and scale significantly. Obviously this could have created share holders wealth going forward as well. Both the companies have attempted to engage in talks with MTN, but 30th September, 2009 unfortunately talks failed (for whatever reasons) and the ambitions vanished. In my view, Reliance’s attempt to have a global footprint was largely driven by Bharti’s ambition. Vinit Tulsyan http://vinittulsyan.wordpress.com
  5. 5. 5 BHARTI – MTN; No Cross Border Connection – A DIFFERENT TAKE The Bharti Scenario Even now, when the talks have ended in-between Bharti and MTN, I believe the ambition of Mr. Mittal to have a company, which could be called a global giant in its respective field, is not going to die, though it has been largely discussed that apart from MTN, there are limited opportunities especially in emerging economies, which could have given such as scale to Bharti at one go. So the billion dollar question which comes in my mind is that will Mr. Mittal look for opportunities outside emerging world and look for perspective alliances in developed world. If this happens, in my view, will little help Bharti and especially is shareholders to create shareholders wealth. Though, this could help the perspective partner in west, and they would be more than willing to have an alliance with Bharti, due to huge potential offered by countries where Bharti operates in. I personally do not see a possibility of having reengagement of talks between Bharti and MTN in near future, at-least for the next two years. Though based on my opinion above, I believe, Bharti within emerging economies might do a deal, which will be much smaller in nature. I also believe in a larger possibility of Bharti scouting for a perspective partner in developed world (valuations of these perspective partners are already stretched), in order to realize its dream of being 30th September, 2009 called a giant, but I fear this will help little to Bharti and its shareholders. Much will also depend on the negotiating and bargaining power, Bharti will have, which in my opinion will be little, mainly due to fulfill its ambition of becoming a giant. The Reliance Com. Scenario Vinit Tulsyan http://vinittulsyan.wordpress.com
  6. 6. 6 BHARTI – MTN; No Cross Border Connection – A DIFFERENT TAKE I believe, now the race for having a larger foot print will be led by Reliance, which in my opinion, decided to race for MTN; following Bharti’s footsteps. I am not saying that Reliance is not again going to talk to MTN, because, the deal was called off more because of regulatory issues between two countries, and I am sure that Bharti along with its bankers would have looked at all kind of deal structure, which could have been able to pass out any regulatory hurdle. Little or much smaller opportunities within emerging markets (as discussed above) apply to Reliance Communications as well. So the same billion dollar question comes here as well, i.e. will Mr. Ambani look for opportunities outside emerging world and look for perspective alliances in developed world. And I am equally apprehensive and of same view, as I had for Bharti. The Fear & the Optimism The larger fear I have is that if there are little and smaller opportunities within M&A space in emerging world, and Bharti ambition of having a larger foot print outside India continues, than it will have no other option, but to look for perspective alliances in developed world. An alliance, which will/might do a world of good for the perspective partner, but I am afraid that it will do even little good for Bharti’s shareholders. The same applies with Reliance as well. I 30th September, 2009 just hope that this war or ambition of having a global footprint or to be called a giant ends here, otherwise, in my opinion there could well be shareholders wealth destruction rather than wealth creation. I just hope that both the companies look for opportunities within countries, where even after the deal; there is enough scope to scale up the business in that country; even if the deal is much smaller in size. I would expect that rather than Vinit Tulsyan http://vinittulsyan.wordpress.com
  7. 7. 7 BHARTI – MTN; No Cross Border Connection – A DIFFERENT TAKE scouting for a larger partner in developed economy (thus providing a chance to become big at one go), both the companies should look for opportunities within emerging and scalable markets, even if the size of the opportunity is small and the number of opportunities exceeds more than one. *** Thanking You, Warm Personal Regards, Vinit Tulsyan http://vinittulsyan.wordpress.com 30th September, 2009 Vinit Tulsyan http://vinittulsyan.wordpress.com

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