Former MTN boss says failed Bharti deal cost SA billions

Businessperson Phuthuma Nhleko says the failed 2009 merger between MTN and Indian telecommunications giant Bharti Airtel was a missed opportunity that could have yielded huge returns for the country.

Seventeen years ago, the telecom operators called off a proposed $23bn merger that aimed to create the world’s third-largest cellphone group, combining Bharti’s Indian footprint with MTN’s African dominance.

Talks were called off twice, finally collapsing in September 2009 after failing to secure regulatory approvals, specifically regarding the control and management of the company under South African regulations.

Nhleko, who was leading MTN while the transaction was being negotiated, believes the deal’s failure was a loss for shareholders and South Africa, saying the Indian portion of that business tie-up would now be worth 10 times what it was then.

In an interview with Business Day, the author said he attributes the transaction’s failure to regulatory and government intervention, noting that while there were concerns about diluting MTN’s “African-ness”, the collaboration and fiscal benefits would have been immense.

“Like most things in life, there’s never an absolute right answer or absolute wrong answer,” he said. “There’s a lot of grey in life.

“If you look at it [the transaction] purely as an MTN shareholder or you look at it as the [SA] fiscus, you lost out.”

Going by the numbers, “If you were an MTN shareholder and you got a split, whatever the split was … and just for argument’s sake, didn’t even do synergies to rationalise between the two operations … all you got was a piece of paper that gave you an exposure to India and an exposure to MTN’s footprint.

“That portion that gives you the exposure to India would be 10 times the value today. That would have empowered MTN shareholders value-wise, and the value that it would have created … for the fiscus, Sars [SA Revenue Service] would have been collecting far more tax.”

MTN is now worth R378.75bn, while Bharti has a market cap of about $124bn (R2.05-trillion). Over the past decade, MTN’s shares have risen 38%, while those of its Indian counterpart have gained 440%.

The main contention was a proposal for the new company to be listed on two stock exchanges, in South Africa and in India, respectively. The South African government insisted on this structure, and since Indian laws did not permit it, the deal fell apart.

At the time, Bharti blamed South African authorities for the deal failure, saying it hoped “the South African government will review its position in the future and allow both companies an opportunity to re-engage”.

Some feared that MTN would lose its African identity through the merger.

“But are you then diluting part of your African-ness by being partly exposed to India and so on? The answer is yes, but everything is a trade-off,” said Nhleko.

“Our domicilium was going to remain and, in fact, at that stage we were looking at a dual listing.”

In addition, Nhleko said there were “synergies and benefits” that would have accrued to the larger combined entity.

The businessperson is credited for driving MTN’s expansion. Under his leadership, MTN grew from five to 21 operations, spanning Africa and the Middle East. Through that period, from 2002 to 2011, the group grew rapidly, gaining more than 185-million subscribers to become one of Africa’s largest listed companies.

In 2013, Nhleko returned to MTN as a nonexecutive director and chair, a role he held until 2019. He served on MTN’s international advisory board from its inception in 2019, before stepping down to take up the role of JSE board chair.

“There are many companies that today are big multinationals… you don’t even know what flag you want to put on them. But notwithstanding that flag, as long as there’s a huge benefit to the fiscus in the country of origin — in our case being South Africa — I would say we’re still better off,” he said.

“But overall I think we lost out. Our shareholders lost out. I think the country lost out.”