Mumbai: Anil Dhirubhai Ambani's Group (ADAG) firm Reliance Communications is looking at a complex marriage with its South African suitor MTN. Anil Ambani also seems to be ready to pay a ''significant premium'' to win effective boardroom control of MTN.
The the two companies are actually discussing a merger than an MTN takeover of Reliance Communications.
A report in The Economic Times said Reliance Communications is looking at the possibility of giving MTN a 74 per cent stake, as part of a cash-and-stock deal. Current Indian regulations limit foreign holding in Indian telecommunication companies to 74 per cent.
Anil Ambani's ADAG holds 66 per cent in Rcom, while another 11 per cent is held by overseas investors. A combined MTN-Rcom entity, would upset the order of the top 10 global telecommunication firms. MTN is valued at $35 billion, and Rcom at $27 billion.
The combined entity would rival Japan's NTT DoCoMo Inc in market value, and in terms of subscribers it would slip into the list just under Deutsche Telekom, at number seven. It would also make Anil Ambani the single largest shareholder in MTN, and make Rcom its subsidiary.
A day ago, the FT Alphaville website had carried a report indicating that Rcom would be inclined to pay ''a significant premium'' for control of MTN, listing out the two options for a possible deal as either a straightforward cash and shares bid for MTN from Rcom, or MTN retaining its South African nationality with Anil Ambani buying in 34.9 per cent of the company.
This would be accompanied by MTN buying in 51 per cent of Rcom from Ambani, along with a cash offer for 20 per cent of Rcom's publicly held shares.
The other possible scenarios being mulled are the "what if" options where either domestic or foreign shareholders of Rcom do or do not subscribe to the open offer that would come along with the deal.
The SEBT takeover regulations stipulate that a foreign company acquiring 15 per cent in an Indian company would have to make an open offer for another 20 per cent. In this case, if the deal would have to be structured in a way that if minority shareholders of Rcom did not subscribe, the open offer would have to be filled out of ADAG's holdings.
Another scenairo is one where no existing foreign shareholders accept the open offer, but local investors do. That would take the total foreign ownership over the stipulated 74 per cent, in which case MTN would have to opt for a 43 per cent stake in Reliance Communications from ADAG's holdings to stay within the legal limit.
A third scenairo is that foreign shareholders would accept the offer, but local shareholders do not. In this case, ADAG would have to hand over 63 per cent of its stake in Rcom in exchange for MTN stock, allowing MTN to secure a 74 per cent stake in the bargain.
In all options, ADAG would swap anywhere between 43 and 63 per cent of its holdings in Reliance Communications, in exchange for 28 to 34 per cent in MTN. Conversely, Ambani will have to stay under the radar of the 35 per cent holding mark, above which he will have to make an open offer for MTN under South African law.