MTN Deal Talks With Reliance Communications Said Stalled

Mergers, Acquisitions and Financial Results

MTN Group Ltd, Africa’s largest mobile operator, and Reliance Communications Ltd. (RCOM) of India have put talks to link up on hold, according to three people with knowledge of the situation.

MTN is skeptical about the industrial logic behind a deal at a time when India is revising its mergers and acquisitions rules, said one of the people, asking not to be identified because the negotiations are private. Discussions initiated this year might have led to MTN taking about a 24 percent stake in Reliance Communications, another person said. The holding has a market value of $1.2 billion.

Led by Chief Executive Officer Sifiso Dabengwa, MTN has been looking to the Indian subcontinent for deals as growth of wireless use slows in Africa. The company was twice in talks to be bought by another Indian group, New Delhi-based Bharti Airtel Ltd. (BHARTI), until negotiations unraveled in 2009 amid political opposition in South Africa. Investors may be relieved that a deal is now less likely, said Kate Turner-Smith, a Cape Town-based analyst for BPI Capital Africa Ltd.

“An acquisition of this nature could potentially limit MTN’s growth in other markets,” Turner-Smith said by phone. “Everyone is relatively pleased with the increased dividend yield, and anything that might endanger that would be frowned upon.”
Former CEO

A representative for MTN in Johannesburg declined to comment on the talks. Gurdeep Singh, head of Reliance Communications’ wireless business, didn’t answer calls made to his mobile phone.

The two companies weren’t able to agree on the price of a potential transaction, two of the people familiar with the matter said.

Last month, MTN named former CEO Phuthuma Nhleko chairman. Nhleko pushed MTN outside South Africa during his almost nine-year tenure. The company’s shares have jumped by two-thirds since early 2009 as it gained market share in the more than 20 countries where it operates.

MTN rose as much as 2.2 percent to 184 rand and traded 0.5 percent higher at 180.86 rand as of 4:41 p.m. in Johannesburg. Reliance Communications closed 1.9 percent lower in India.

India is home to 13 mobile-phone operators, the largest of which are Bharti and Vodafone Group Plc. (VOD) Sanjay Kapoor, who was CEO of Bharti until March, said last year that an increase in call prices -- a development that’s “desperately” needed -- wouldn’t occur until there are fewer operators.
Increasing Debt

Reliance Communications’ total debt increased more than threefold to 375 billion rupees ($6.2 billion) in the year ended March 31, from 119 billion rupees in June 2006, according to data compiled by Bloomberg. In March, the Mumbai-based company posted a decrease of about 27 percent in fiscal 2013 net income to 6.7 billion rupees.

The company said it had completed repayment of $1 billion in bonds on July 1 after paying back a $500 million loan on May 10 taken in 2007. The company also announced that it plans to spin off its real estate business worth an estimated 120 billion rupees, according to a July 7 statement. The new company, which will be called Reliance Properties Ltd., will be separately listed, according to an e-mailed statement.