Bharti Airtel, India's largest mobile services company, said Wednesday that it had called off talks for an alliance with MTN Group of South Africa.
The South African government did not approve the proposed alliance's structure, Bharti Airtel said in a filing to the Bombay Stock Exchange.
The South African government, which views MTN as a national champion, has insisted on keeping MTN's separate identity, according to reports.
Perhaps to avoid government objections, the talks between the companies were described as leading to a partnership, though a merger at a later date was not ruled out.
The period for exclusive talks between the companies was scheduled to end Wednesday, after two earlier extensions.
The broad structure discussed had taken into account the sensibilities and sensitivities of both companies and their countries, including ensuring continuity of business in areas such as management, brand and stock listing, Bharti said.
The companies said in May that a full merger between them was a broad strategic objective, as soon as it was practicable, indicating that the immediate focus of the talks was on a loose partnership and cross-investments between the two companies.
Under the terms for an arrangement announced in May, Bharti Airtel was to acquire 49 percent shareholding in MTN, while MTN and shareholders would acquire a 36 percent economic interest in Bharti Airtel through a stock and cash deal.
Together the two companies would have US$20 billion in revenue and 200 million customers, Bharti Airtel said in May.
Under the arrangement, Bharti Airtel would have substantial and governance rights in MTN, enabling it to fully consolidate the accounts of MTN.
Bharti Airtel would be the primary vehicle for the expansion of both Bharti Airtel and MTN in Asia, while MTN would focus on expansion in Africa and the Middle East.
The South African government is said to have insisted on a dual listing of the combined entity after a merger, in order to protect the identity of MTN as a South African entity, according to informed sources. Dual listing of companies in India and another country is not allowed by Indian rules, which only allow depository receipts of Indian companies to be listed abroad under specific conditions.
This is the second time that alliance talks between Bharti Airtel and MTN fell through over the structure of the combined entity. Bharti Airtel, which has Singapore Telecommunications as a key shareholder, said last year that earlier talks fell through after disagreement on the structuring of the deal, particularly MTN's insistence that Bharti Airtel should be a subsidiary company of MTN after the deal.
Bharti will continue to explore international expansion opportunities, the company said in its statement on Wednesday. It hoped that the South African government would review its position on the proposed structure and allow the two companies an opportunity to re-engage.