RCOM evaluates other means to merge with MTN

03 July 2008

Mumbai: After Mukesh Ambani-led Reliance Industries put a spoke in Reliance Communications' (RCOM's) plans to merge with South African telecom giant MTN, claiming right of first refusal (RoFR) in any stake sale plan by an Anil Ambani company, the latter is said to be looking at other means to merge with the South African company.

RCOM is said to be looking at setting up a special purpose vehicle (SPV) controlled by Anil Dhirubhai Ambani Group (ADAG) chairman Anil Ambani and in which a Middle East based sovereign wealth fund would also hold substantial stake. This SPV would then buy a controlling equity stake in MTN to become its single largest shareholder.

This would mean RCOM having to comply with the South African stock exchange rules which say that an acquiring company has to launch a tender offer if it's holding crosses 35 per cent stake in a local company. Two options exist for RCOM. One would be to acquire less than the 35 per cent stake limit and then ask MTN's shareholders to vote to waive their right to a tender offer.

Should MTN's shareholders agree, RCOM will be able to hike its stake to 40 per cent in MTN, and if not RCOM would have to remain content with a stake of just below 35 per cent also remain the single largest shareholder.

A trust by the name of Newshelf 664 is currently the largest shareholder with its 13 per cent stake. The Beirut-based Mikati family holds a 10.2 per cent stake while PIC has a 9.7 per cent stake. The rest 67.1 per cent is widely held.

Sources said RCOM can do this because of a loosely worded clause in the non-compete clause between ADAG and Reliance Industries according to which, ''If at any time, either group …. desires to sell or transfer all or substantially all of its holding together with control of any of the companies or a business or a material part of the undertaking of a business as a going concern in that group, it shall first offer … the opportunity to purchase the company holding, business or undertaking to the other group.''