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Merger Talks Between MTN and Reliance Fail

Legal and regulatory issues have led South African telecommunications company MTN and India's Reliance Communications to end negotiations to combine businesses, MTN said Friday.

The announcement puts to an end talks that were dogged by squabbling between Anil Ambani, chairman of Reliance Communications, and his elder sibling Mukesh Ambani, chairman of Reliance Industries. After a bitter dispute, the estranged brothers had divided the business empire built by their father.

Reliance Communications and MTN announced on May 26 that they had entered into 45 days of exclusive negotiations for a potential combination of their businesses. The exclusivity of the negotiations meant that MTN could not negotiate a merger with any other company during that period.

Anil Ambani had planned to swap his controlling stake in Reliance Communications with MTN in return for a significant stake in MTN, according to sources close to the situation. By this arrangement, Reliance Communications would become a subsidiary of MTN, but Anil Ambani would have a controlling stake in the combined entity.

The negotiations, however, ran into legal threats from Reliance Industries, which claimed that it had the right of first refusal to any disposal of the controlling stake in Reliance Communications.

Following the threats from Reliance Industries, MTN and Reliance Communications announced earlier this month that they had extended the period of exclusive negotiations until July 21.

As an alternative to swapping his controlling stake in Reliance Communications for a stake in MTN, Anil Ambani was planning to acquire a significant equity stake directly in MTN, according to some reports.

That plan was unlikely to have gone down well with MTN, which earlier had called off negotiations with another large Indian telecommunications company, Bharti Airtel, after disagreement on the structuring of the merger.

MTN had insisted that, after the merger, Bharti Airtel should be a subsidiary company of MTN. Key shareholders in Bharti Airtel like the Bharti family and Singtel would in return hold a majority stake in MTN.

Anil Ambani's plans to invest directly in MTN are likely to have met with similar objections from MTN, according to sources. MTN and Reliance Communications were not immediately available for comment.

MTN and Reliance Communications have mutually called off the exclusivity agreement, according to statements by both companies.

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