Johannesburg/Mumbai, Jul 7: South Africa's MTN is considering walking away from a telecom tie-up with India's Reliance Communications over fears that Anil Ambani's ongoing acrimonious spat with elder brother Mukesh Ambani, could leave the deal open to legal action.
The Financial Times said that a person familiar with the MTN-Reliance Communications talks on Sunday, expected both to extend negotiations for another two to three weeks after a 45-day period expires on Tuesday, July 7. There is, however, no indication that the extra time under consideration would be sufficient to resolve the fraternal business feud in Mumbai.
Reliance and MTN are aiming to create one of the world's largest emerging markets telecoms operators with 115 million subscribers in Africa, the Middle East and India.
Under the deal, MTN would acquire Reliance, but Anil Ambani would take control of MTN by swapping most of his 66 per cent stake in the Indian mobile operator for shares in MTN.
Together with investment from private equity and sovereign wealth funds, he would end up with a stake of between 50 and 51 per cent in the South African operator.
This controlling shareholding in MTN would enable Anil Ambani to rebuff the claim from Reliance Industries, controlled by his elder brother Mukesh, that it has a right of first refusal over Reliance Communications.
There are mounting fears that none of the myriad deal structures under discussion would prevent Mukesh's lawyers from stepping in to stop the proposed deal from going through.
MTN "will have to get the legal assurances from Reliance Communications that they are in a position to defend themselves against a move from Reliance Industries," the paper quoted Sean Gardiner, a telecoms analyst at Morgan Stanley, as saying.
Reliance Industries' claim hinges on Anil Ambani selling out of Reliance Communications but, under the structure being considered, he would retain control over the Indian mobile operator, albeit indirectly. Reliance Industries, however, argues that it has the right of first refusal as contained in an agreement signed by the two groups just before the brothers divided the industrial empire of their late father, Dhirubhai Ambani in 2006. Anil Ambani denies he or his lieutenants ever signed the agreement.
The person familiar with the situation said Reliance Communications and MTN had not replied to Reliance Industries' letters concerning its right. MTN has so far declined to comment on this reported development.