The extension of exclusive talks that could lead to a merger of India's Bharti Airtel and South Africa's MTN Group weakens the probability of the deal closing, UBS said in a research note.
MTN shareholders seem to not in favour of a deal under current terms and Bharti is unlikely to pay significantly more, UBS analysts Suresh Mahadevan and Nupur Agarwal said.
We do not expect Bharti to significantly increase its bid price. Given the lukewarm response we have gauged from MTN shareholders, we believe there is a good chance that this transaction may not happen, they said.
The two telecoms have been in exclusive talks since late May aimed at creating the world's No. 3 mobile firm with more than 200 million customers across India, Africa and the Middle East.
On Thursday, the companies said the talks were extended to Sept. 30, following an earlier extension of the talks to Aug. 31, which analysts and investors said could be because of pricing issues and a complexly structured deal.
Bharti chairman Sunil Bharti Mittal said in a media interview published on Friday that the Indian firm was not looking to sweeten its bid and there were no contentious issues over deal structure.
The UBS analysts assumed the current deal structure valued MTN at 153 rand a share or a 20 percent premium over its share price and would add to Bharti's earnings in fiscal year 2010/2011, while a 40 percent premium would erode earnings.
At 1151 GMT, MTN shares were up 0.9 pct up at 127.50 rand in Johannesburg. Bharti shares closed trade in Mumbai up 2.9 percent higher at 411.50 rupees.
(Reporting by Narayanan Somasundaram; Editing by John Mair)