Talks between Bharti Airtel and MTN Group to create the world's third-largest mobile operator collapsed for the second time in just over a year on Wednesday.
Bharti, India's largest mobile operator, blamed the South African government for the latest breakdown in a deal which faced close scrutiny from regulators and politicians.
South Africa was eager to retain MTN's national character and had approached Indian authorities to consider a dual-listed entity, a structure Indian law does not allow.
We hope the South African government will review its position in the future and allow both companies an opportunity to re-engage, Bharti said, adding it would continue to explore international expansion opportunities.
Shares in MTN, Africa's biggest mobile operator by subscribers with a market value of about $31 billion, fell as much as 3.5 percent to 119 rand after the news.
The rand ZAR=D3 fell as much as 2.56 percent to 7.62 against the dollar, according to Reuters data.
Ahead of the news, shares in Bharti closed 0.1 percent lower in a market that rose 1.6 percent.
Bharti and MTN revived talks in May, a year after previous negotiations broke down over who would control the resulting emerging markets giant with more than 200 million customers across India, Africa and the Middle East.
Under the initial terms outlined in May, MTN and its shareholders would take a 36 percent economic interest in Bharti which end up with 49 percent of MTN.
The deal would have given both exposure to new markets ripe for growth, while a full merger, the eventual aim of the talks, would yield cost savings, allow for technology sharing, and provide financial muscle for more expansion, analysts say.
A combined entity would have been the third-biggest mobile operator based on subscribers, behind China Mobile and Vodafone, although its annual sales of $20 billion would be dwarfed by China Mobile's $60 billion and Vodafone's $65 billion.
The exclusive talks over the deal were initially due to end on July 31 but were extended twice earlier.
Bharti had increased the cash component of its offer for a 49 percent stake in MTN to $10 billion from a proposed $7.6 billion, two people familiar with the matter had said. [ID:nSP209216]
On top of that, the Indian firm was paying $4 billion in stock for a total package of $14 billion, 7 percent more than an estimated $13 billion proposed initially.
India's capital markets regulator last week altered the country's takeover rules, requiring a company that acquired 15 percent of an Indian firm through American depositary receipts (ADRs) or Global Depositary Receipts (GDRs) with voting rights to make a mandatory offer for a further 20 percent.
Under the new rules, MTN might be required to make an offer for an additional 20 percent stake in Bharti, if it is issued GDRs with voting rights.
South Africa's labour federation COSATU has said it would examine the deal to ensure workers interests were protected, while sources have said it was trying to halt the deal.
Standard Chartered and Barclays was advising Bharti Airtel, while Bank of America Merrill Lynch and Deutsche Bank were advising MTN.
(Editing by John Mair and David Cowell)