...a tourist spot. Not much more for Bharti!
“Sour grapes!” Just a few days back, the mobile behemoth had bid for a 51% stake in South Africa’s largest telecom player, MTN at $21.7/share, implying a fair price of $20.7 billion (and a premium of 20% higher to MTN’s shareholders). A $50 billion dream-deal (in-principle a Bharti-controlled structure as decided on May 26, 2008) was in the making. Two weeks later, the dream has literally become “sour grapes”! Surely, Bharti has done more than just read BCG’s July 2007 report that proved “how M&As valued beyond $1 million destroy twice as much value”! So, what’s there in the secret cellar that urged Bharti to back out?
The primary reason – lack of synergies. As a spokesperson from the company justifies, the collapse of the deal was because “this convoluted way of getting an indirect control of the combine would have been just a compromise for minority shareholders of Bharti. Moreover the synergies were not real!” It was also about the price here, which didn’t afterall appear ‘fair’! In order to seal the deal, the company had to procure ‘internal’ funds and leverage its balance sheet to a mind-boggling $40-45 billion – huge for a grossly overleveraged company (which has a debt/equity ratio of a dangerous 43.2!). Finally, with Singtel refusing to pay-up $10 billion, Bharti had no means to make procurement of funds a safe bait.
“Sour grapes!” Just a few days back, the mobile behemoth had bid for a 51% stake in South Africa’s largest telecom player, MTN at $21.7/share, implying a fair price of $20.7 billion (and a premium of 20% higher to MTN’s shareholders). A $50 billion dream-deal (in-principle a Bharti-controlled structure as decided on May 26, 2008) was in the making. Two weeks later, the dream has literally become “sour grapes”! Surely, Bharti has done more than just read BCG’s July 2007 report that proved “how M&As valued beyond $1 million destroy twice as much value”! So, what’s there in the secret cellar that urged Bharti to back out?
The primary reason – lack of synergies. As a spokesperson from the company justifies, the collapse of the deal was because “this convoluted way of getting an indirect control of the combine would have been just a compromise for minority shareholders of Bharti. Moreover the synergies were not real!” It was also about the price here, which didn’t afterall appear ‘fair’! In order to seal the deal, the company had to procure ‘internal’ funds and leverage its balance sheet to a mind-boggling $40-45 billion – huge for a grossly overleveraged company (which has a debt/equity ratio of a dangerous 43.2!). Finally, with Singtel refusing to pay-up $10 billion, Bharti had no means to make procurement of funds a safe bait.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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