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162 UNIVERSITY OF BOTSWANA LAW JOURNAL DECEMBER 2010 here. Bharti Airtel operates on a low cost model and was convinced the model can work in other parts of the world or at least in Africa. 6 MTN on the other hand has extensive mobile broadband (3G) portfolio and has implemented mobile number portability (MNP). With India, on the verge of implementing MNP and 3G looking to pick up steam, the combined entity would certainly have gained an upper hand. Further, Africa and large parts of West Asia have high customer billings also known as average revenue per user (ARPU) in the industry running up to USD 18 a month in countries such as Syria and South Africa which present a revenue expansion opportunity for Bharti Airtel, which like most Indian players rarely has ARPU rates of more than USD 7. Also, the opportunity for growth in Africa and India is a positive for both sides. Both Africa and have around 40% penetrations allowing for a lot of opportunity. 7 THE FAILURE OF THE DEAL After months of due diligence and talks between Bharti Airtel and MTN, after countering a host of issues, the deal couldn’t go through because of the ‘structural issues’ as stated by the South African government. 8 The deal was primarily influenced by the following major factors: 1.Dual Listing of the combined entity 2.FDI regime in India 3.Indian Takeover Code Dual listing as per standing South African laws is allowed. 9 However India currently does not allow dual listing at its stock exchanges. This presented an unforeseen legal challenge for the structuring of the deal especially given the restrictive Indian laws. Further the FDI regime in India was changed in early 2009 especially as regards the telecom sector which further complicated matters. The death bell for the deal was perhaps the complete U-turn done by the Indian market regulator – SEBI from its earlier guidance provided to the deal makers and the subsequent amendment of the Takeover Code. All these issues combined with the South African Government’s unwillingness to let go of MTN’s South African identity jointly failed the deal and are discussed at length in the next chapter. 6 A. Anyimadu, ‘The Economist on MTN’, The Economist, 10 May, 2008 (U.S. Edition). 7 A. Mukherjee, ‘Airwave Sandwich’, Outlook India, 2 June, 2008, URL: http://www.outlookindia.com/ article.aspx?237548 (Last visited on 12 May, 2010). 8 ‘Bharti, MTN call off merger talks’, Bloomberg UTV, 30 September, 2009, URL: http:// www.bloombergutv.com/industry-news/telecom-industry-news/33330/bharti--mtn-call-off-mergertalks.html (Last visited on 17 April, 2010). 9 For instance Investec is a dual listed company with Investec Plc (listed in London) and Investec Limited (listed in Johannesburg). Also Mondi Group Plc is listed on the London Stock Exchange and the Johannesburg Stock Exchange.
AIRTEL’S AFRICAN TRYST 163 THE LAW VIS-À-VIS THE PROPOSED DEAL The legal setup of both the countries presented a unique challenge for this strategic alliance. Both these companies were market leaders in developing economies which led to each of these companies being seen in their home territories as prized possessions and their respective governments were not willing to let them relinquish their national identities. One of the novel suggestions put forth to overcome this national identity issue was to allow for the combined entity to be dual listed at Johannesburg and Mumbai. Dual listing is a listing process by which a company would be allowed to be listed and traded on the stock exchanges of two countries. Put simply, it is a process that allows a company to be listed on the stock exchanges of two different countries. The company’s shares, which enjoy voting rights, can be traded on both the bourses. When two companies in two countries enter into an equity alliance without an outright merger, dual listing means continued listing of the firms in both the countries. The key point is that the shareholders can buy and sell shares of both the companies on bourses in the two countries. In a conventional merger or acquisition, the merging companies become a single legal entity; with one business buying (for cash or stock) the outstanding shares of the other. However, when a dual listed company is created, the two companies continue to exist, and to have separate bodies of shareholders, but they agree to share all the risks and rewards of the ownership of all their operating businesses in a fixed proportion, laid out in a contract called an ‘equalization agreement’. 10 We will now focus at the legal hurdles in the Indian laws as regards this dual structure. India currently does not allow dual listing. This is because there is no full capital account convertibility (CAC) in India. CAC is normally understood as the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange. India introduced full capital account convertibility first for NRIs in early 2002, 11 and with the decisions in January 2004 it has substantially begun the process of introducing full convertibility for the benefit of foreigners. 12 However this process is still not complete. India is slowly moving in this direction at a slow and calibrated pace. Now let us look at the Bharti Airtel-MTN deal from the dual listing viewpoint. At the 2009 G-20 Summit, a South African minister requested 10 See generally L. Rosenthal and C. Young, ‘The seemingly anomalous price behaviour of Royal Dutch/ Shell and Unilever N.V./PLC’, Journal of Financial Economics (1990) 26, 123-141. 11 T. G. Arun and J. D. Turner, ‘Financial Sector Reforms: The Indian Experience’, The World Economy, (2002) 25(3), 429-445. 12 ‘Full convertibility: Caution still the watchword’, The Hindu, 9 February, 2004, URL: http:// www.hindu.com/2004/02/09/stories/2004020900050200.htm (Last visited on 5 May, 2010).
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