Airtel denies talks of merger with Orange

NEW DELHI: Bharti Airtel, the world's fourth-largest mobile phone operator, has denied a news report of talks with France's largest phone company, Orange SA, for a possible merger of its African assets, although people familiar said both companies had earlier been involved in deliberations which fell through. 

 "A year ago there were some discussions with Orange for a possible merger but it collapsed," a person familiar with the matter told ET, explaining that both companies wanted to retain a controlling stake over the combined entity.

Airtel had explored talks with Luxembourg-headquartered Millicom International Cellular SA as well, but that too didn't fructify.

"And then, that was it. Bharti then decided to go solo and divested its tower business," the person said. Bharti Airtel, India's largest mobile phone operator, had delayed the sale of its towers in Africa, hoping to strike a deal for its lossmaking business.

According to a media report, Orange is scouting for assets in Africa and has been interested in Bharti Airtel's operations, as it attempts to increase its business in the region.

A Bharti spokesperson said, "We strongly deny these rumours, which are completely baseless." Bharti operates in 17 countries in Africa, which it entered in 2010 by buying Zain's operations on the continent for $10.7 billion.

While the debt raised to pay for the acquisition drove up its finance costs, the business itself has made losses ever since and has been a drag on profitability at a consolidated level.

Earlier this week, Bharti reported a net loss of $136 million ( Rs 835.9 crore) at its Africa operations for the third quarter of the fiscal year which ends March 31, wider than the $94 million loss posted a year ago. Revenue from the continent dropped 5.3% from a year earlier to $1.16 billion in the three months quarter ended December 31.

Another person in the know said Bharti had almost finished divesting its tower business -- which would lead to lower depreciation costs and help pay back part of its debt -- and it didn't make sense for it to now go for a merger.

Last year, Bharti sold close to 11,500 of its 15,000 towers to Helios, Eaton and American Tower Company, raising almost $2.5 billion, in a bid to cut costs and focus on core operations on the African continent. "Secondly, Orange will be more interested in the francophone operations of Bharti, and not the East African ones," he added, explaining why the two companies weren't a perfect fit for each other.

Bharti has been performing well in the francophone countries and divesting its East African operations would make more sense, he said. Analysts have been scathing about Bharti's inability to turn around its African operations after over four years of operations. Critics have often blamed the Bharti management's efforts to replicate its India strategy of low tariffs and high volumes for the debacle in Africa.

The approach hasn't helped in attracting new customers the way it wanted.

"Africa continues to be a pain point in Bharti's performance," Credit Suisse said in a note after the company's third-quarter results released on Wednesday.

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