Bharti-MTN deal termination: How will the stock react?

The much-anticipated deal between India’s Bharti and South Africa’s MTN has botched yet again. On the news of termination, MTN shares fell 3% from the day’s high, to close down 1%. Rand fell over 2% versus dollar. The company has requested the SA exchanges to suspend trading till tomorrow. Consequently, trading in MTN shares has been suspended by JSE on Wednesday; to resume Thursday morning.

Dipan Mehta, Member of BSE and NSE, says, “Clearly, a relief rally is on the cards and over the past few weeks Bharti-Airtel had been an underperformer and has not participated in the rally purely on account of the overseas acquisition. Investors are still grappling with all the 2007-08 acquisitions which had been done and how those stocks had underperformed. So that was clearly playing on the minds of traders, investors in Bharti-Airtel considering it was going to do such a massive acquisition. So now that the deal is off we would see Bharti clearly come back as a strong contender and may be it could take some leadership away from some of the other sectors. Telecom by and large has been underperforming, so clearly this is a trigger for the sector and for the stock. Some of the investors which had been waiting on the sidelines and we also know of investors who had sold as soon as the news was out that they were again looking at the deal seriously - they may come back big time into Bharti-Airtel. So it is disappointment for the management but certainly positive for the minority shareholders.”

Shubham Majumder, Telecom Analyst, Macquarie Securities expects a strong relief rally in the Bharti stock in the next two to three days. He said that the deal overhang had suppressed Bharti’s stock price. “From a market sentiment point of view, clearly the MTN deal had capped Bharti’s valuations over the last four-five months since it was announced. I think there clearly will be a relief rally because a significantly large number of global fund managers had either sold off completely or had gone significantly underweight on the announcement of the MTN engagement. Clearly we will see them coming back into the stock given where the growth outlook in the domestic market is and where the valuations are vis-à-vis the market. We think Bharti is one of the most attractive large-caps in India at this point in time especially with the MTN overhang now gone. We expect a strong rally over the next two to three trading sessions in Bharti Airtel.”

Further, he says, “We retain Bharti as one of our top overweights and key positions across the regional Asia-Pac telecoms portfolio. It remains our number one pick in the Indian market at this point in time. We have a target price at this point, which suggests at least a 25-30% upside from current levels with potential upsides because of tower valuations starting to kick-in over a 12-month timeframe, which were not factored-in our current target price as of now.”

However, Jaideep Ghosh, Director of KPMG says that is something that one will perhaps see tomorrow. “The markets shouldn’t react adversely because as you rightly said there were several constraints and there were some aspects of sweetening the deal from Bharti’s side in the later part of the meetings and discussions etc,” he says.

From that perspective and all the regulatory aspects of dual listing and other voting rights and GDR being there, Ghosh says, it would have put a lot of constraints on Bharti Airtel. “The market should react not on the negative side but at least in the immediate or short term more on the positive side. That is what I think we will kind of see and what happens tomorrow.”

source: moneycontrol

Tags: bharti, Bharti Airtel, bharti MTN deal, bharti mtn deal called off, bharti mtn deal cancelled, deal, MTN

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