Foreign investment norms in India are the biggest challenge for a potential merger of South Africa’s MTN and Bharti Airtel — which are nearly the same size in terms of market capitalisation. Foreign investment norms make it mandatory for a telecom operator to have a minimum 26 per cent Indian equity.

In case there is a complete merger it will be difficult to maintain 26 per cent Indian investment in the entity, as Indian equity in Airtel is presently below 50 per cent. This is why negotiations are focused towards a complete takeover of MTN in a part-equity and part-cash deal, said sources. Officials of the two companies are engaged in negotiations in London.

Recently, Bharti Airtel issued a statement saying its discussions with MTN were aimed at combining the companies strengths. This led to speculations that the companies were moving towards a complete merger. Sources said that in South Africa, MTN wants to avoid the negative connotations that go along with selling out. This is why the deal is being projected as a merger of two equals.

An acquisition is a complete takeover of one company by another. The company that is bought no longer exists. A merger takes place between two companies that agree to form one large company. After a merger, shares of both companies cease to be traded and the company chooses a new name and a new stock is issued in lieu of the two companies’ stock.

MTN operates in 21 countries in Africa and West Asia. Africa registered a 33 per cent increase in mobile subscribers in the past year, according to the international GSM Association. In South Africa, mobile penetration is about 90 per cent. However, only 282 million people out of Africa’s 922 million population have a cellphone.