There have been too many explanations and theories floating around as to why the much-hyped Bharti-MTN deal fell through. To get a grasp of factors leading to the failed deal, it is imperative to understand what the South African government felt and how public opinion was moulded in that country. This is especially since trade and business relations between the two nations, and indeed between India and the entire African continent, is a historical one, dating back several years, if not centuries. In recent years, multiple deals have been signed between India and African nations. So, why did Bharti-MTN fail where others have succeeded?
While many in South Africa believe the failed deal between the two telecom giants should not put the skids on future trade links but provide significant regulatory lessons for both countries, the blame, they say, lies with both the companies as well as the governments concerned. Arthur Goldstuck, managing director of World Wide Worx, a Johannesburg-based telecommunications research company, believes there were two issues that killed the deal.
The first revolved around the fact that Bharti would own MTN, though everyone seemed to pretend that this wouldn’t be the case, thus creating an aura of mistrust around the deal in general. “Secondly the fact that the Indian government refused to relax its regulations on dual-listings, while expecting South Africa to relax its own requirements, meant there was a feeling that the Indian government wanted a ‘have-their-cakeand-eat-it’ situation,” Goldstuck says. Indian ownership of MTN, he argues, was not an issue, since Vodacom, South Africa’s biggest cellular operator, is British-owned and Cell C, the country’s third-largest operator, is Saudi-owned.
Journalist Duncan McLeod, a columnist for the Financial Mail, on the other hand, says the failure points to a more protectionist approach by South Africa’s government. “The country ought to be opening up to investors, not scaring them away,” McLeod says.
FOREIGN ACQUISITIONS IN SA
|In January 2006, South Africa’s Competition Tribunal approved a R21-billion bid by Vodafone to increase its stake in local cellular company Vodacom by 15 per cent.|
|In 2005, Barclays Bank paid R 30 billion for a majority stake in Absa Bank.|
|In 2007, the Industrial and Commercial Bank of China (ICBC) purchased a 20 per cent stake worth $5.5 billion in Standard Bank Group Ltd., Africa’s largest bank.|
The feeling that a national jewel was being sold off, however, is clearly evident from various statements made by the country’s political leaders. Opposition to the deal from the government was strong with Communications Minister Siphiwe Nyanda insistent that MTN should remain a South African company. Outgoing Reserve Bank Governor Tito Mboweni described it as an important asset and that its key officers must reside in the country. “It would be sad if we saw this entity move into the hands and management of foreign nationals,” Nyanda said in September.
McLeod sums it up when he says: “Most analysts feel that both governments didn’t fully come to the table.” Nyanda’s statement though left him wondering. “That’s a disturbing statement. It suggests that SA is closed to foreign investment if it leads to foreigners acquiring a controlling stake in an SA business.”
The good news, many say (or hope), is that the breakdown in the merger would not dent Indian business participation in the continent. “There is a good and healthy Indian presence in South Africa, indicative of an open environment for Indian companies to do business in the country. However, for bigger deals to work in future, India will have to become more of an open environment,” says Goldstuck.
Steven Ambrose, an industry analyst, while agreeing that the breakdown would not have a negative impact on future deals, also raises the patriotic pitch. “Africa is the fastest growing mobile continent and MTN is well placed to take advantage of this. With (average revenue per user) ARPUs dropping significantly for mobile networks in India, my sense is that Indian operators are looking for a way into the growing African market. MTN will not need an Indian operator to continue their growth in Africa and the Middle East.”
Industry watchdog Andy October echoes this when he says the cellular industry in South Africa is regarded as “the family jewels” of the economy, and the government may have intervened because of an earlier experience when trade unions came out to protest Vodafone’s Rand 21-billion deal to increase its stake by 15 per cent in Vodacom, thereby becoming the majority shareholder. “I think the government adopted a more cautious approach, choosing to hear all sides.
There was most certainly politics at play,” he says. He, however, also highlights the deep nationalistic feelings involved when he says: “MTN has a duty to their shareholder but the government has a duty to the nation. Telecoms should be viewed as a national resource and the government has a duty to protect national interest.”
In the end, though, it boiled down to one simple fact: the regulatory frameworks of the two countries weren’t ready for the kind of deal MTN and Bharti had in mind. This is a lesson that Indian companies seeking mergers in emerging markets will have to keep in mind in future.