Mumbai: Reliance Communications Ltd, India's No 2 mobile operator, has entered into exclusive negotiations for a tie-up with South Africa's MTN Group, knocking its shares down 4 per cent.
Reliance was quick to fill a void left after its bigger domestic rival, Bharti Airtel, pulled out of talks at the weekend aimed at taking control of MTN, sub-Saharan Africa's biggest mobile operator.
A source with knowledge of the negotiations said Reliance would not be looking for the same kind of structure in a deal with MTN.
Analysts said MTN was likely to have a majority stake in a "special purpose vehicle" set up by the two firms.
"Reliance Communications and MTN Group have agreed to enter into exclusive negotiations with respect to a potential combination of their businesses," Reliance said in a statement on Monday, adding there would a 45-day exclusivity period.
Reliance Chairman Anil Ambani said a deal with MTN could "provide investors, customers and the people of both companies a global platform for exponential growth".
MTN had 68.2 million subscribers as of March, compared with Reliance Communications' 48 million.
"Reliance Communications is smaller than MTN, and lacks the financial muscle for a takeover, but it is not going to want to be a subsidiary, either," said Ravi Dodhia, a telecoms analyst at KR Choksey Securities.
He said the two firms were instead likely to create a special purpose vehicle, with MTN taking a 51 per cent stake.
Shares in Reliance Communications, valued at about $28 billion, fell as much as 4.1 per cent to their lowest since May 14.
By 0537 GMT, the stock was quoted down 3 per cent at Rs 555.15.
"The reason investors didn't like talk of the Bharti-MTN deal was the price, and now Reliance Communications will have to pay a price that is at least equal to, or higher than what was being talked about for Bharti," said Arun Kejriwal at investment advisory KRIS.
Media and analysts had speculated that Bharti Airtel was eyeing a 51 per cent stake in MTN or engineering a merger in a deal that would value MTN at up to $50 billion.
Bharti said on Saturday it called off talks after MTN proposed a new structure which it said would have seen the Indian firm becoming a unit of MTN.
Shares in Bharti rose as much as 4.2 per cent to 872 rupees, their highest since May 6, when they slumped more than 5 per cent on news that Bharti was in talks with MTN.
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