South African major to make open offer to RCom shareholders.
Reliance Communications (RCom) and South African telecom major MTN
Group are close to finalising a reverse merger deal under which RCom
will become a subsidiary of MTN Group and its chairman Anil Ambani
will initially hold 28 to 30 per cent in the merged entity, which
would make him the largest shareholder.
The deal would create a telecom colossus with 115 million subscribers
in 25 countries.
Ambani, who holds 66 per cent in RCom, may then buy another 4 to 6 per
cent either through market operations or from shareholders to reach a
34 per cent shareholding in MTN through an all-cash deal. The
promoters will have to pay $1.8 billion to $2.5 billion to buy the
residual stake.
MTN's promoters will hold the remaining 65 per cent stake in the
merged entity.
The Ambanis do not want to exceed a 34 per cent holding in MTN because
South African rules mandate that crossing the 35 per cent limit
invites a "tender offer" (open offer) for 20 per cent of shares.
The deal also requires MTN to make an open offer to RCom shareholders
to make it a subsidiary. Under Indian laws any company acquiring more
than 15 per cent has to make an open offer.
MTN also has to ensure that its equity stake in RCom does not exceed
74 per cent, the maximum permissible foreign direct investment (FDI)
in telecom companies under Indian laws. RCom's foreign holding is
currently limited to foreign institutional investors that hold 11 to
12 per cent.
Sources said the promoters might also swap up to 50 to 55 per cent of
their equity in RCom to meet FDI norms and continue to hold the rest
directly in the firm. In that case the Ambanis would get a much lower
stake in MTN and have to fork out more cash to reach the desired 34
per cent level in MTN.
The specifics of the shareholding structure will depend on the share-
swap ratio, which is yet to be decided.
"Discussions are at an advanced stage and the valuation of the company
will be fixed only after the due diligence is complete. A top team of
RCom is studying MTN's books and the process is expected to be
completed by next week," sources familiar with the developments said.
Ambani is likely to be nominated the chairman of the company and
current MTN CEO Phuthuma Nhelko will continue as the executive head of
the merged entity.
When contacted, an RCom spokesperson declined to comment on the
development.
The structure of the deal was finalised after Ambani met Azmi Mikati,
chief executive of M1, the investment arm that is MTN's second largest
shareholder with 10.2 per cent, in London last Wednesday. He also met
top MTN executives including Phutumo Nhelko.
Newshelf 664, owned by MTN employees and management, is the largest
shareholder with nearly 3 per cent more than the Mikatis.
MTN Group, with over 68 million subscribers in 22 countries in Africa
and Asia, has a market capitalisation of around $38 billion. Analysts
were expecting a premium of over 20 per cent to this, which values the
company at over $45 billion.
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