South African mobile group MTN’s biggest shareholder supports revived merger talks with India’s Bharti Airtel in principle, but believes there is “room for improvement” on the price.

Brian Molefe, chief executive of South Africa’s state pension fund Public Investment Corporation (PIC), told Reuters the fund was still undecided on whether to vote for an initial proposed $23 billion cash and share swap with Bharti.

“Because of the strategic imperative, yes we will support the deal, but it depends on how they are going to negotiate, how the final details are going to look,” Molefe said in a phone interview, in his first public comments since talks restarted.

“I would say there is room for improvement on the price.”

MTN, Africa’s biggest mobile operator and Bharti, India’s leading cellular firm, said last week they had restarted talks aimed at creating the world’s No. 3 wireless group with more than 200 million subscribers and combined revenues of $20 billion.

They are discussing an initial cash and share swap deal which would leave Bharti with 49 percent of MTN, while the South African company and its shareholders would get 36 percent of Bharti. That could lead to a full merger of the companies, which have a combined market value of about $60 billion.

PIC, South Africa’s biggest fund manager, holds about 21 percent of MTN after a recent black economic empowerment deal, so winning its support will be crucial for the companies.

MTN shares gained as much as 3.75 percent after the comments and closed up 2.92 percent at 123.51 rand, still well below the 132-134 rand price tag which analysts say the deal implies.

SWEETER OFFER

Several smaller MTN investors have said Bharti needs to sweeten its offer although Lebanon’s Mikati family — which holds about 10 percent — has already supported the transaction.

The companies would need approval from at least 75 percent of MTN shareholders for a tie-up, which analysts say would provide access to new high-growth markets, while boosting buying power and financial muscle for further expansion.

Bharti Airtel Chairman Sunil Mittal told CNBC TV18 in an interview prior to Molefe’s comments that he expects the proposed merger to be supported, saying MTN would look after generating backing from its investors.

Molefe said the PIC “appreciated MTN’s attempt to diversify its revenue” but said the details still had to be “bedded down”.

“I think MTN should negotiate even more on the price. We would also like a better price like everybody else,” he said.

Several South African fund managers have said they will vote against the deal because the roughly 13 percent premium Bharti is paying is too low for effective control of MTN.

“MTN is not a company that needs to be saved by Bharti. Its doing well, thank you, on its own,” said Hlelo Giyose, portfolio manager at Stanlib Asset Management, which he said owned 3.8 percent of MTN shares.

PIC said that as well as price, it would also base a decision on whether to support a firm offer on how much influence over a merged entity MTN would retain.

“One of the things will be important for PIC will be MTN having influence on Bharti,” Molefe added.

A previous round of talks between the companies broke down over who would control a merged entity.

Molefe, who has used his influence to lobby hard for black ownership and management of major companies, also said his own contract was up for renewal in March 2010, but that he would consider staying longer.

South Africa’s Financial Mail weekly reported last week that Molefe, viewed as loyal to former President Thabo Mbeki, could face pressure to quit under the new government of Jacob Zuma.

“I’m still very much working at the PIC,” Molefe said.