Aspiring merger partners Bharti Airtel and
MTN have obtained the nod from capital market regulator SEBI to exempt the South African telecom company from making an open offer following a deal between them. ( Watch )
This was announced by SEBI in a notification issued on Tuesday. On Friday July 3, ET NOW had first reported that both telcos had approached the market regulator seeking that MTN be exempted from making an open offer since Bharti Airtel’s equity expansion will only be in the form of global depository receipts (GDRs) that will be listed on the Johannesburg Stock Exchange, top This would imply that the South African company’s entire 36% holding—25% through MTN and the rest through its shareholders—will be in the form of GDRs.
Under current takeover regulations, an investor acquiring a 15% stake in a company must make an open offer for an additional 20%. But, SEBI has given an excemption and said that the proposed deal structure does not require an open offer since MTN’s shareholding in Bharti will only be through GDRs. SEBI has also added that the open offer will only trigger once the GDRs are converted to local shares with voting rights.
The proposed $23-billion transaction between the largest mobile phone operators in India and Africa involves a complex structure according to which both entities would pay cash and equity for stakes in each other. The formula, if it works out, will result in Bharti Airtel getting a 49% stake in MTN and the South African telco a 36% “economic interest” in Bharti Airtel.
ET had first reported on June 15 that South African telecom major MTN’s proposed 36% stake in Bharti Airtel will be through global depository receipts (GDRs), if the plans by the two companies to mutually acquire equity to form a global cellular alliance stretching from the Cape of Good Hope to the Indian Ocean goes through. This had put to rest all speculation regarding the deal.
Bharti Airtel, in its communication to SEBI seeking the waiver has confirmed that its entire equity expansion would be in the form of GDRs issued to MTN and its shareholders: “The transaction contemplates issuance of Global Depository Receipts (GDRs) by Bharti Airtel Limited (BAL) to MTN and its shareholders, whereby MTN would receive GDRs which if exchanged for underlying shares of BAL would constitute approximately 25 % of the share capital of BAL. Similarly, MTN shareholders would receive GDRs with underlying shares approximating 11 % of BAL’s share capital. The shares underlying the GDRs will be issued to the overseas depository bank and shall rank pari passu with the other issued shares of BAL,” Bharti’s communication to SEBI added.
A legal expert ET had spoken to earlier had said that there were provisions in the takeover code under which companies could seek specific exemptions from having to make an open offer. “This exemption is given only if the markets regulator is convinced that the public shareholders are not disadvantaged because of the lack of an open offer. This is the guiding principle that Sebi will consider when granting such exemptions,” the expert had said.