Saturday, October 03, 2009

Bharti MTN Deal Analysis

The Bharti MTN deal has fallen through. While there was a lot of analysis and news reporting (often breaking) on why the deal broke down, there has been a clear lack of analysis in the media on the merits of the deal, other than the fact that this would have be India's largest M&A transaction.

Intuitively, it seems strange that you would want to acquire the largest player in the territory. Clearly, Bharti did not have the appetite to do an all cash deal. Now the largest player can only grow so much on the already large scale that it has, so how would Bharti have added value. It would, in my opinion have been much better to acquire a smaller player with licences to operate in large number of regions and build on top of it. That the market rewarded the Bharti stock with a nice gap up opening on stock closure seems to suggest that this perception was right. I guess no one would know now as to what would have been the outcome if the deal had gone through.

One fear I have is that Bharti can see growth slowing down in India (due to high base, increased competition) and therefore it wanted to use its high valued currency (read stock) to purchase assets that were relatively trading at fair (if not cheap) value. This is the only reason I can think of as to why Bharti would want to acquire / merge with MTN. There don't seem to be any cost synergies (Its not as if you could share infrastructure, towers!! across continents)

It would'nt have given Bharti greater bargaining power with vendors. You know it is not a small player anyways. Perhaps in the future, media (at least business media) can actually do some financial analysis and ask relevant questions rather than just giving in to the hype.

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