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

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


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.



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



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
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.



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
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



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
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



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



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

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