If it had gone through, the deal would have created a cellular powerhouse for emerging markets, but in the end neither India nor South Africa wanted to cede ground.
"The South African government was concerned about loss of control, outflow of currency which may be repatriated, taxation issues and the fact that the Indian government could not commit on dual listing," said Dobek Pater, senior telecom analyst at Africa Analysis.
The South African government wanted MTN to continue to be listed at the Johannesburg Stock Exchange (JSE), but Indian corporate laws do not allow dual listing. Dual listing would have required full exchange convertibility of the Indian rupee, which was not attractive to the Reserve Bank of India. South Africa favored dual listing, where shares are listed on different exchanges and allow investors an option where they want to trade.
Proponents of the dual-listing structure contended that it would have allowed the companies to maintain separate shareholders but combine cash flow and operations, maximizing resources.
The deal -- which if brought to completion would have resulted in the third-largest mobile services provider in the world, with 200 million subscribers -- was the subject of discussion between South Africa President Jacob Zuma and Indian Prime Minister Manmohan Singh on the sidelines of the recently concluded G20 economic summit in Pittsburgh.
In principle, Singh assured that Indian corporate laws would be amended to accommodate the deal. However, the reserve bank continued to express concerns about the listing rules being changed to accommodate one company. So ultimately, the Indian government could no longer give assurances with absolute confidence.
Under the terms of the proposed deal, Bharti was to acquire a 49 percent share of MTN. MTN and its shareholders would acquire an approximately 36 percent interest in Bharti, of which 25 percent would be held by MTN with the remainder held directly by MTN shareholders.
Part of the discussion about the deal had nothing to do with finances, however, but rather the extent to which the culture of the companies will be affected.
Bharti has a more well-known brand in Asia while MTN is a pan-African and Middle East brand. There were questions whether MTN would rebrand and whether the Bharti brand would provide a competitive edge for Africa's largest mobile service provider, with a footprint in 21 African countries.
While announcing results for the six-month period ending Aug. 31, MTN CEO Phuthuma Nhleko expressed his desire not to repeat the past mistakes of local companies that stepped onto the global stage, were absorbed into larger international groups and lost their South African identity.
The loss of the company's South African "DNA" had been the concern of President Zuma as well as COSATU, the labor federation that has opposed the merger.
Early Wednesday, South African Communications Minister Siphiwe Nyanda gave the strongest indication that the government was not willing to budge on the matter of the dual listing when he told journalists that MTN must remain South African, managed by locals. The two governments kept insisting the fate of the deal was in the other country's hands.
The deal was complex because shareholders holding a combined 75 percent stake in MTN would have had to approve the deal. MTN shareholders had the option to take $13 billion in cash for a 36 percent stake in the reorganized company instead of the earlier proposed $7 billion in cash and $6 billion worth of Bharti Airtel shares.
To demonstrate its commitment to the deal, Bharti had sweetened its deal with an offer giving MTN a 27 percent stake in Bharti Airtel, compared to the 25 percent that was proposed when the contours of the deal were first announced in May this year. MTN was to pay $2.9 billion in cash to Bharti.
MTN's Nhleko also indicated that though the focus of talks centered on MTN and Bharti, Singapore Telecommunications (SingTel), the Singapore exchange's biggest company and a major (30 percent) shareholder of Bharti, remained an important player. Nhleko said SingTel was "an integral part of the deal" not only in terms of the benefits but additional synergies that would further lower the costs of operations.
The decision to pursue the deal was precipitated by the MTN board two years ago, when it indicated that the group needed to diversify its earnings base. The board also wanted to pursue opportunities for growth because the mobile sector depends heavily on economies of scale as providers expand to lower economic segments and lower tariffs. This model means that bringing down the cost base is a priority.
Analysts who had followed the negotiations raised questions concerning whether the Indians could teach Africans something about doing business in Africa, since the Indian market is very different from the African markets. Another consideration was whether MTN would be able to -- or want to -- leverage its cooperation with Bharti to move into central and East Asia.
India companies pride themselves on their experience in competing in low-tariff, low-ARPU (average revenue per user) markets, which is where many African markets are heading as competition increases.
There is no doubt that MTN could have benefited from association with Bharti and SingTel, especially in terms of access to technology and well-trained human resource, according to some observers.
"MTN has been moving in the direction of outsourcing part of its back-end operations; therefore, a merger with Bharti would have presented an opportunity to outsource part of the functionalities like internal IT services and call centers to India," said Africa Analysis' Pater.
Racial politics also played a part in the fate of the deal. During the six-month results announcement in August, Nhleko expressed his commitment to comply with Black Economic Empowerment policies. Private companies must apply the black empowerment codes if they want to do business with any government enterprise or organ of state.
BEE policies stem from a reaction to the apartheid government that had systematically excluded Africans, Indians and people of color from meaningful participation in the country's economy and from ownership and participation in decision-making in large corporations. BEE policies require companies to adhere to guidelines for allocating shares to all racial groups.
The S.A. telecom regulator ICASA therefore decided that the deal would need to go through an approval process from a shareholder-analysis perspective, which is separate from the Competition Commission review and approval process. The deal, then, would have had to face extensive regulatory scrutiny on matters related to sensitive national policy issues.
So even if the deal had been approved by company officials and shareholders, there would have been no assurance that it would have complied with regulatory requirements in both countries and whether COSATU would have posed challenges on labor issues.
Ultimately the deal held the potential to reshape Africa's telecom market, but now no one will know for sure. Unless -- given the history of talks between the companies -- negotiations once again open up next year.
