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Indian telecoms group Bharti Airtel bet big in Africa over 2011 – but its ambitions were stymied by a Nigerian court on Monday.

A legal dispute with Econet Wireless, a rival which operates mostly in Zimbabwe, has thrown its Nigerian business into disarray. Bharti’s ownership of Airtel Nigeria has been declared “null and void” because Econet, a 5 per cent shareholder in the original business, was not consulted on the transfer.

Here’s the story in a nutshell. Econet owned 5 per cent of the shares of a consortium in Nigeria: Econet Wireless Nigeria (EWN). But in 2003, it alleges, its shares were improperly cancelled. That was when Econet first launched legal proceedings.

Celtel, a division of Zain, the Kuwait-based telecoms group, bought a 65 per cent stake in EWN in 2006 (and renamed it V-mobile). Then, in 2010, Zain sold most of its African mobile operations – which included those in Nigeria – to Bharti Airtel for $10.7 billion. Both sales have been disputed by Econet.

This is what Econet alleges:

In October 2003, Econet Wireless received a letter from the chairman of [EWN], Mr Oba Otudeko, in which he advised that at a board meeting, directors had decided that Econet Wireless was no longer a shareholder,  Econet’s share certificate had been cancelled, and Econet’s name removed from  the shareholder register. The motive for this unprecedented action was the circumvention of Econet Wireless’ rights as a shareholder in order to facilitate the  sale of shares, first to Celtel International, and later to Bharti Airtel.

What does Monday’s ruling mean for Bhati? According to Econet’s statement, Airtel Nigeria will have to reinstate its 5 per cent share holding and revert to its original name. What’s more: “all actions, and resolutions taken by the company since October 2003, at which [Econet] was entitled to be notified… are null and void. This includes decisions to sell shares, issue shares, and also transfer shares to third parties”.

This could be a problem. Bharti’s Nigerian business makes up a sizeable chunk of its operations – around 9.5 percent of its consolidated operational profits, said the company. Reuters, however, notes that the case wouldn’t immediately threaten Airtel Nigeria because “Bharti had been adequately indemnified against any potential legal danger when it took over the operator from Kuwait’s Zain – and because of the small size of Econet’s stake.” However, Econet is disputing the sale to Zain in the first place.

In any case, Bharti thinks it can reverse the decision and said in a brief statement that it would launch an appeal. It added: “the judgement will have no impact on the equity holding of other shareholders in Airtel Nigeria.”

After emerging triumphant – at least for now – following more than eight years of legal wrangling, Econet’s chairman Strive Masiyiwa was understandably more loquacious:

“I am very disappointed that whilst it was clear to Celtel, Zain and Bharti-Airtel that Econet Wireless was a shareholder, they still chose to pursue a path, in which the end justified the means. It is clear even to those with the most basic understanding of company law that the board of a company has no power in any jurisdiction to simply cancel the shares of a shareholder but their desire to own  the company was so great that they were prepared to overlook the facts and ignore our rights.

The substance of this ruling, which was known by Celtel and then Bharti, was a matter of record in the legal documents of the company. It is also common cause to even the casual reader that the order given has far-reaching consequences on the current ownership status of the company.

It’s complicated, as they say.

Related reading:
Zain board agrees $10.7bn Bharti deal, FT
Bharti faces fight on Zain deal, FT