New Delhi/Mumbai May 24: Bharti has decided to disengage from it's ongoing talks with South African telecom major MTN for a merger which would have combined the strengths of the two leading emerging market players in over 25 countries.

The company has already conveyed its decision to pull out of the talks to the MTN board, after discussions that continued till late last night could not achieve a breakthrough.

The failure of the deal comes as a set back to Bharti group as the merger would have catapulted Sunil Mittal in the global telecom big league with a subscriber base of over 131 million subscribers in 25 countries closing in on such leading players like Vodafone (with 250 million subscribers in also 25 markets), China Mobile with 392 million subscribers and American Movil (in Mexico) with over 159 million subscribers.

The decision to call off negotiations was taken after the MTN board which met on 21st May, rejected Bharti's offer of merging MTN in Bharti Airtel (in which MTN shareholders would get a stake) and a new alternative proposal was suggested. An in principal agreement had been reached between the two players on May 16th for a merger which was initialed by the bankers from both sides and put up in the board.

Instead the board in a complete volte face suggested that Bharti Airtel becomes a subsidiary of MTN and in return the Mittal family (which holds 45.31% stake through Bharti Telecom) and Singtel (which holds 30.50 equity stake directly and indirectly in Bharti Airtel) would have a controlling interest in the South African telco. The proposal was not acceptable to Bharti Airtel.

In a statement issued by the Bharti group the company said that the decision to pull out of the talks was prompted by its consideration that the new structure proposed by the MTN board would not have been in the interest of Bharti Airtel's minority shareholders and in its plans for growth as an Indian telecom multinational. Sunil Mittal chairman of the group said: "Our interest is not about our shareholding but our aim of making Bharti Airtel a global multinational. We did not want control in such a convoluted manner."

The Bharti statement also added that the reference price at which MTN shares were to be transacted was agreed and frozen at the point of starting the discussion and Bharti would like to confirm that there was no further discussion on the share price of MTN, at any point. It also said that internationally reputed bankers from the US and Europe have given confident letters of funding of over $60 billion (the valuation of MTN was around $45-50 billion).

Bankers, however, say that MTN had issues on three areas: One was they uncomfortable that Nhelko would become only deputy CEO with Mittal running the merged entity as the CEO. Two, the offer of 160 Rand per share was also an area of bone of contention. Thirdly, there were questions whether MTN shareholders would be accommodated within the 74% FDI limit imposed by the Indian Government on telecom companies.

Says Naresh Singh, principal research analyst, Gartner "If the merger would have taken place, this would have been good for both Bharti Airtel and MTN as both the companies were operations were similar and the geographies the companies were operating also held a lot of opportunities.".