India's Bharti Airtel Ltd and South Africa's MTN Group Ltd today extended by a month their 31 July deadline to conclude their exclusive merger talks. If successful, this merger will create the world's third-largest mobile phone operator.

In a joint statement, Bharti and MTN announced that they had extended merger talks until 31 August. ''As discussions between the parties regarding the potential transaction are continuing, both parties have agreed to extend the exclusivity period,'' New Delhi-based Bharti said in a statement to the Bombay Stock Exchange on Monday.

The statement added, ''No decisions or agreement to acquire any shares or implement the transactions outlined above have been made by the boards of either Bharti or MTN and the discussions may or may not lead to any transaction. The structure and terms of the potential transaction may be adjusted to reflect further discussions between the parties.''

Bharti, India's biggest wireless operator, proposes to buy 49 per cent of MTN, while Africa's largest mobile-phone company and its shareholders plan to acquire 36 per cent of Bharti, the two companies said on 25 May.

Bharti has offered 86 rand ($11) plus 0.5 Bharti shares per MTN share. The approval of holders of 75 per cent of MTN is needed for the transaction to succeed. Some MTN shareholders, including Coronation Asset Managers, which holds about 5 per cent, have rejected the proposal.

An agreement would help the companies trim costs and challenge Vodafone Group Plc, the world's biggest mobile-phone company, which is counting on the more than 1.7 billion people in Africa and India for growth. Bharti and MTN plan to spend about $7 billion this year to extend their reach in markets from the Cape of Good Hope to the Himalayas that contributed almost 90 per cent of Vodafone's new users.

Bharti and MTN revived merger talks in May, a year after previous talks broke down over who would control a merged entity. (See: Bharti, MTN revive merger talks). A merger would create an emerging markets giant with more than 200 million customers across India, Africa and the Middle East. 

The fact that both companies have mutually agreed to extend the exclusive merger talks shows that this time, both the telecom operators want to hammer out the complex issues at hand and come with a final arrangement to close the deal.

Management structure
Analysts both in India and South Africa are worried about the management structure of the combined entity, although Bharti had said in the past that it would have substantial representation in the working of MTN, including its board, while MTN's interest in Bharti would also reflect in its equity and representation on the Bharti board.

Sunil Mittal, chairman of Bharti Airtel, had recently said that both companies would retain the current management structure and operate as separate companies for the next few years until the implementation of the merger is complete.

A combined entity would be the third-biggest mobile operator based on subscribers, behind China Mobile and Vodafone, although its annual sales of $20 billion atre nowhere close to Vodafone's $65 billion and China Mobile's $60 billion.

Bharti's chairman Sunil Mittal, 51, may still have to convince MTN's shareholders about the benefits of combining with the Indian company and accept his offer.

At least four of MTN's top 25 shareholders will reject an offer from Bharti, Reuters reported 27 May, citing the investors. Many analysts do not rule out a sweetened offer from Bharti as demanded by a section of MTN shareholders.

A deal may face fewer hurdles than Vodafone's purchase of a controlling stake in Vodacom Group Ltd. The Congress of South African Trade Unions, the country's largest labour federation that filed a lawsuit against the Vodacom deal, has said it doesn't plan to block the MTN-Bharti transaction. India's finance minister Pranab Mukherjee too has termed the two carriers' proposal to combine a ''welcome move.''

The combined operation will help Mittal's Bharti increase overseas sales at a time when Reliance and Vodafone are narrowing Bharti's lead in India. Competition is also intensifying with the entry of more foreign rivals, including Japan's NTT DoCoMo Inc and Norway's Telenor ASA.

Bharti added a record 8.44 million users last quarter, 60 per cent of them in rural and semi-urban areas. The additions boosted the operator's total wireless subscribers to 102.4 million, more than the combined populations of Spain and the United Kingdom.

Vodafone's Indian unit and Reliance added customers at a faster pace in April and May, according to the latest available figures from the Telecom Regulatory Authority, to increase their market shares to 18 per cent and 19 per cent respectively, while Bharti's proportion was unchanged.

The merger of Bharti and MTN will be India's biggest cross border deal at almost twice the value of the acquisition of the UK's top steel maker Corus Group Plc for $12 billion by Tata Steel Ltd in January 2007. It also surpasses the acquisition of Hutchison Essar Ltd, India's second largest GSM mobile service provider then by the UK's Vodafone Group Plc for $11 billion, by more than a similar margin.

Global telecom companies are drawn to India's market estimated to grow to more than 650 million subscribers by 2012 from 360 million currently as 10 million new subscribers are added each month. Africa's telecommunications markets are dominated by mobile phone subscribers at more than 360 million accounting for 90 per cent of all subscribers, growing at around 40 per cent per year.