The proposed deal between Bharti and MTN to combine their businesses fell through over the weekend. Although the principal reason for the fallout appears to be disagreement over who would control the combined entity, that was aided by problems with structuring the deal from a regulatory perspective. As The Economic Times reports:
“In addition, there are other factors that may have contributed to the collapse of the talks. According to industry sources, a Bharti-MTN merger would have faced major regulatory hurdles on the FDI front. “The merger would have meant that foreign holding in Bharti Airtel would have reached around 85%. While Bharti executives had told MTN that they would be able to get the FDI sectoral cap waived, the feedback that MTN directors were independently receiving was that it would be difficult for the sectoral cap to be relaxed,” said an industry source.”
This clearly indicates the difficulties that Indian companies would face in using their own shares as currency for foreign acquisitions when they are operating in sectors that have a cap on the level of foreign shareholding, with telecom being a prime example. This is particularly so in case of Indian acquirers that already have a large foreign shareholding, thereby limiting the structuring options for overseas acquisitions largely to cash transactions or to the establishment of overseas subsidiaries that carry out such acquisitions.