Reliance Communications, MTN deal almost through

Reliance Communication and South African telecom company MTN are close to signing a deal to merge the two entities. While the structure of the merged entity has been finalised, issues related to pricing and country-specific regulation are being thrashed out by the two sides.

According to sources close to the deal, both sides have agreed on a 35:100 swap formula whereby RCom shareholders will get 35 shares of the merged entity for every 100 RCom shares they hold.

Sources said the merger structure under discussion will not make either company a subsidiary of the other. RCom will get one of the top executive positions in the merged entity.
Within FDI limit

They also said the foreign direct investment norms in India will not come in the way as RCom has only 10 per cent foreign equity, giving the two companies ample room to structure the shareholding pattern. Current FDI rules permit foreign companies to hold up to 74 per cent stake in a telecom operator. When contacted, RCom officials declined to comment.

The proposed structure is broadly the same as the one offered by MTN to Bharti Airtel before Mr Anil Ambani evinced interest in partnering the African major. Bharti had walked away from the deal as it had hoped to make MTN a subsidiary.

Market analysts said the proposed structure made more sense to RCom as the company sought to improve its market share and average revenue per user by rolling out GSM-based mobile services. While MTN has over 68 million GSM-based customers across 21 countries in Africa and West Asia, Reliance has 45 million predominantly CDMA subscribers in India. RCom also has licences in Sri Lanka and Uganda.

If the deal goes through, the merged entity will be valued at an estimated $36 billion, with revenues of over $14 billion and an operating profit of nearly $6 billion. This is the second time that RCom is trying to woo MTN for a possible alliance, and this time sources close to the negotiations said the deal should be announced in a week.