The deal structure proposed by Anil Ambani-led Reliance Communications (RCom) to acquire South African telecom major MTN Group is more "doable" than the earlier proposal by Bharti Airtel, according to Macquire.
Media articles in the past two days have mentioned a potential share swap between Anil Dhirubhai Ambani group (which holds 66 per cent stake in RCom) and MTN will result in the latter becoming the largest shareholder of RCom.
"In turn, ADAG will become the biggest shareholder in MTN. This structure would require no equity dilution or issuance of new debt by RCom, which makes the deal doable," the global financial advisory and investment services firm said in a report.
In contrast, a merger between Bharti Airtel and MTN would have required "significant equity dilution and debt issuance by Bharti", it said.
Foreign ownership in Bharti Airtel is already at around 65–68 per cent (close to the 74 per cent cap). This would also make structuring a similar deal not possible for Airtel as MTN acquiring a meaningful stake would have led to a breach of the maximum foreign ownership limit.
Moreover, a potential merger between Bharti and MTN would have run into trouble as a lot of the large institutional investors of Bharti would have been forced to sell their stock.
Their investment mandates do not allow them to own a company's stock, which has operations in Iran, Syria or Sudan. In the case of an RCom-MTN deal, this situation will not arise since operations in these countries will continue to be a part of MTN and RCOM will have no presence or role to play in these markets.
However, Macquire said that the retail wireless operations of RCom and MTN have limited scope for "quick synergy or operational expense cuts".
Earlier on Monday, RCom and MTN announced that they have agreed to enter into exclusive negotiations for 45 days with respect to a potential combination of their businesses and are discussing various deal structures.
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