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Bharti Shares drops on deal concern

August 4, 2009

Shares in Bharti Airtel fell more than 3 percent on Tuesday after the mobile operator and South Africa’s MTN group extended talks (to August 31) aimed at creating the world’s No 3 operator, beating China Mobile and Vodafone.

Bharti Airtel closed at 400.55 rupees and was among the top 20 traded stocks on the BSE, with volumes up to 835.10 million rupees.

The deal is valued at around $23 billion with a complex structure involving share swap and cash. MTN and its shareholders would take 36 percent economic interest in Bharti and the Indian firm would end up with 49 percent of MTN.

In the present structure, according to sources, Bharti will pay about $4-5 billion, which would probably be funded via debt and the rest through issue of new shares.  MTN-BHARTI/FUNDING

This would more likely result in equity dilution as more shares are issued to fund the deal and debt would make the company more levered. This might not impress Bharti shareholders.

Bharti shares had dropped nearly 10 percent on May 25 when an announcement was made about the talks. Since then stock prices have seen a low of 384 rupees, signifying a standard deviation of 11.09.

While the Beta of Bharti Airtel with the BSE Sensex is relatively stable around 0.014 for the period May 25 to August 4, that for a one year period (July 2008 – June 2009) stands at 0.86.

Do you think the deal will push Bharti shares to new highs or will it decline on Bharti sweetening the deal and probably paying more than its value?

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