In separate statements, RCOM and MTN said exclusive talks for a deal that would have created a $66-billion emerging markets telecom giant with operations in about 24 countries and around 120 million subscribers were being snapped.

“Owing to certain legal and regulatory issues, the parties are presently unable to conclude a transaction. Accordingly, it has been mutually decided to allow the exclusivity agreement to lapse,” RCOM announced on Friday.

MTN also issued a similar statement to Johannesburg Stock Exchange. The RCOM-MTN announcement means MTN is free to pursue other suitors. Earlier, MTN had held talks with Sunil Mittal’s Bharti Airtel for a deal, but Mittal backed out of talks later.

Sources involved in negotiations told The Indian Express that MTN’s nervousness about a legal dispute between RCOM and Mukesh Ambani-promoted Reliance Industries Ltd was not the sole reason for the deal falling part. RIL had yesterday initiated arbitration proceedings against RCOM staking claim to the right of first refusal whenever RCOM decides to sell equity stake.

A source said RCOM had suffered mark-to-market losses of $1.5 billion on currency hedging and these were not factored in while valuing the company based on EBITDA (earnings before interest, tax, depreciation and amortisation). Further, while RCOM wanted the share price to be referenced to May 26 when it entered into exclusive talks, MTN insisted that the price as on date of the deal should be considered for valuation purposes.

RCOM shares ended up 4.1 per cent at Rs 435.20 in a firm market on Friday, adding to gains of 4.7 per cent the previous day. But the shares are down 24 per cent from late May when the talks with MTN were first announced. MTN shares closed 2.76 per cent lower at 130.30 rand, as analysts in South Africa doubted a deal was on the cards.

As per the May 26 agreement between RCOM and MTN, the latter would exclusively negotiate with the Indian company during the 45-day exclusivity period. The period was extended by two weeks on July 8 to July 21. RCOM had worked out various models for a deal and even lined up big investors including the Investment Corporation of Dubai, a sovereign wealth fund of Dubai to fund the deal.

Incidentally, the announcement came a day after RIL commenced arbitration proceedings by nominating Justice B P Jeevan Reddy, a former Judge of the Supreme Court of India as an arbitrator for resolution of “disputes”. RCOM said the proceedings were legally and factually unwarranted. It is also learnt that MTN was nervous about entering a deal with a legal cloud over it. RIL opposed the RCOM move on June 13 saying it had the first right of refusal whenever RCOM decides to sell the equity stake. However, this was countered by RCOM that the contentious non-competition agreement was signed between RIL and RCOM when the latter was controlled by RIL chief Mukesh Ambani in what it called a one-sided deal.

Wrong Number

• May 26: RCOM, MTN enter into exclusive merger talks

• June 13: RIL opposes RCOM move, claims first right of refusal

• July 3: RIL invites RCOM for mutual conciliation talks

• July 7: RIL, RCOM reject offer for talks

• July 8: RCOM, MTN extend exclusivity period till July 21

• July 17: RIL starts arbitration proceedings against RCOM

• July 18: RCOM, MTN end exclusivity period