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South Africa (MTN)and Reliance Close to Deal

Date: 7/3/2008 3:44:20 PM

A deal between South Africas MTN Group Ltd. and Indias Reliance Communications Ltd. could be announced this weekend, despite threats of legal action to block the deal, two people familiar with the situation said.

MTN and Reliance "are getting very close to announcing the deal. If there are no last-minute disagreements, the announcement may come as early as Sunday or sometime next week," one of the people said.

Wednesdays comments came after people familiar with the situation said last week that MTN is concerned that a feud between the two brothers who control Reliance Group companies may jeopardize the merger talks.

Since late May, R-Com, controlled by Anil Ambani, has been in exclusive talks with MTN over a possible combination that would create a telecommunications empire stretching from Africa through the Middle East to India.

In June, Reliance Industries Ltd., controlled by Mukesh Ambani, Anils elder brother, sent a letter to MTN saying the firm had the right of first refusal on any deal involving a sale of R-Com.

"The deal will be worded in such a way that it will likely avert a lawsuit from being filed. But, in any case, [R-Com and MTN] are prepared to move forward and deal with the Mukesh Ambani challenge when and if it comes. Their lawyers are telling them its an acceptable risk to take," one of the people said.

The exclusive period in which R-Com and MTN can hold talks ends July 9. A second person familiar with the talks said the two sides are trying hard to reach a deal before that date. "The announcement will outline the broad parameters of the deal. How much MTN will buy in R-Com and the management structure of the merged entity," this person said. The person added that if unexpected problems arise, the two sides may mutually agree to extend their exclusive negotiations.

Talks between the two telecom operators are centered on Anil Ambani likely selling his 66% in R-Com to MTN in a share swap. Under this scenario, he would emerge as the biggest shareholder of the merged entity but R-Com would become a subsidiary of MTN.

"MTN wants the maximum 74% stake allowed by Indian regulators in R-Com, but since a close to 10% stake is already held by foreign investors, MTN may have to settle for around 64%. MTN will then make a general offer and buy the remaining stake," the second person said.

This person said the deal will be finalized after four months, when MTN and R-Com receive all necessary approvals from various regulators.

Reliance is among Indias biggest mobile operators and is valued at $26 billion. MTN, Africas dominant telecom company, has a market capitalization of about $30.7 billion.

Officials at R-Com and Reliance Industries declined to comment. MTN couldnt immediately be reached for comment.

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