Bharti Airtel announced today that it has renewed its talks with South Africa’s MTN for a potential partnership. The development assumes significance as the earlier talks between the two parties had failed last year.

Under the new scheme, Bharti said that it is aiming for a 49 % shareholding in MTN. In return MTN along with its share holders would acquire 36 % ‘economic interest’ in Bharti out of which 25 % will be held by MTN and remainder by its shareholders.

The two parties said that the move is on the lines of a objective to create a world leading operator with combined revenues of $ 20 billion and a subscriber base of 200 million.

Commenting on the development, Sunil Bharti Mittal, Chairman and Managing Director of Bharti, said, “We are delighted at the prospect of developing a partnership with MTN to create an emerging market telecom powerhouse.  Both companies would stand to gain significant benefits from sharing each other’s best practices in addition to savings emanating from enhanced scale.  We see real power in the combination and we will work hard to unleash it for all our shareholders. This opportunity also represents a first of its kind in developing an Indian-African initiative that would serve as a shining example of South-South cooperation.”

The deal will involve MTN acquiring 25 % economic interest in Bharti for a value of around $ 2.9 billion in cash and newly issued shares of MTN equal to approximately 25% of the currently issued share capital of MTN.

“Bharti would acquire approximately 36% of the currently issued share capital of MTN from MTN shareholders for a consideration comprising ZAR 86.00 in cash and 0.5 newly issued Bharti shares in the form of Global Depository Receipts (“GDRs”) for every MTN share acquired which, in combination with MTN shares issued in part settlement of MTN’s acquisition of approximately a 25% post-transaction economic interest in Bharti, would take Bharti’s stake to 49% of the enlarged capital of MTN.  Each GDR would be equivalent to one share in Bharti and would be listed on the securities exchange operated by JSE Limited, South Africa,” said a statement from Bharti.

Further to this, Bharti will have participatory and governance rights in MTN enabling it to fully consolidate the accounts of MTN while MTN'''s economic interest in Bharti would be equity accounted and would have appropriate representation on the Bharti Board.

Additionally, Singtel (Singapore Telecommunications) will continue to be a strategic partner and significant shareholder after the implementation of the potential transaction.

“Bharti would be the primary vehicle for both Bharti and MTN to pursue further expansion in India and Asia while MTN would be the primary vehicle for both Bharti and MTN to pursue further expansion in Africa and the Middle East’” said Bharti.  

The company statement however cautions that the discussions are at an early stage and may or may not lead to any transaction. Also the structure of the proposed set-up may also witness some changes.

Standard Chartered Bank and its affiliate First Africa SA (Pty) Ltd are the financial advisers and AZB & Partners and Bowman Gilfillan are the legal advisers to Bharti.

The two parties would be in exclusive talks with each other till July 31, 2009.