University of Botswana Law Journal - PULP

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).