Bharti Airtel Shares Fall, Mtn Rises on Possible Buy Talks

BANGALORE (Dow Jones)--Shares of India's Bharti Airtel ended lower Tuesday, but those of MTN Group rose sharply in contrasting reactions to a possible acquisition of the South African telecoms giant.

Bharti, which is India's largest telecoms firm with 64 million subscribers, and MTN said late Monday that they were in exploratory talks that may or may not lead to any transaction.

Bharti's shares closed down 5.3% at INR846.60 on the Bombay Stock Exchange, as investors feared it may pay too much for the South African firm, if it gets sucked into a bidding war.

Other suitors such as Vodafone Group and India's Reliance Communications may also enter the fray given MTN's reach across Africa and a likely slowdown in growth in the Indian telecoms market after two-three years, analysts said.

"The (Indian) market is worried that the company (Bharti) may have to overpay for MTN, while taking on heavy debt on its books to fund the buy," said Nishna Biyani, an analyst at Mumbai-based Prabhudas Lilladher.

In contrast, MTN's shares were up 8% at ZAR162 at 0821 GMT, boosted by hopes of a strong valuation for the company.

A Financial Times report estimated Bharti's bid at ZAR165 a share for a 51% stake in the company. A Bharti Airtel spokesperson declined to comment on the Financial Times report.

Based on FT's report, a UBS note estimates MTN's enterprise value around $40.6 billion, about 16% higher than its current market capitalization of $35 billion and about 10 times MTN's earnings before interest, tax, depreciation and amortization of $4.1 billion.

According to a Goldman Sachs report, telecom mergers & acquisitions in the last couple of years have been at an enterprise value/EBITDA value of at least 10 times.

"This gives very little room for an upside, though the valuation differs from company to company," said Harit Shah, an analyst at Mumbai-based Angel Broking.

In case of a bidding war, the valuations for MTN, which has a presence across 21 countries in Africa and the Middle East, could rise further, putting strong pressure on Bharti's balance sheet, analysts said.

"Even if Bharti were to buy the 23% held by Alpine Trust, that would come to about $9 billion, or about INR350 billion," said Harit Shah, an analyst at Mumbai-based Angel Broking.

"They will have to fund this mostly through debt. If they do that, their debt-to-equity ratio, which is 0.4 times now, can go up to 2 times," Shah said.

For a 51% stake, Bharti will have to pay around $20 billion, said Biyani.

According to media reports, Bharti has tied up $12 billion in debt, and plans to fund the balance through a share swap with MTN's shareholders.

"This could mean a further equity dilution of around 20% for MTN's shareholders," said Biyani.

He expects Bharti's stock to be under pressure for the next three-to-six months.

-By Romit Guha, Dow Jones Newswires; 91-9900181471; romit.guha@dowjones.com

(END) Dow Jones Newswires

Posted to the site on 6th May 2008

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