IHS Global Insight Perspective | |
Significance | The transaction will see Bharti Airtel become the world's fifth largest mobile operator with a customer base of some 179 million. It will have operations across 18 countries. |
Implications | The deal will Zain to focus on its "highly cash generative operations" in the Middle East, and the agreement comes almost five years to the day after MTC (now Zain) acquired pan-African mobile operator Celtel in 2005 for US$3.4 billion. |
Outlook | The transaction excludes Zain's operations in Morocco and Sudan. It is expected to close as soon as reasonably practicable subject to the satisfaction of certain approvals, according to a company press release. |
Zain announced yesterday that it had signed definitive agreements for the sale of 100% of Zain Africa BV, its African business excluding its operations in Morocco and Sudan, to Bharti Airtel for an enterprise value of US$10.7 billion. Bharti Airtel, India's leading mobile operator, will acquire Zain's African mobile services operations in 15 countries with a total customer base of more than 42 million. Zain is the third largest operator in sub-Saharan Africa, after MTN and Vodacom. It is the market leader in 10 of these countries and ranks second in 4 countries. With this acquisition, Bharti Airtel says it will become the world's fifth largest wireless company with operations across 18 countries.
Bharti Airtel has been looking to enter the African market for some time. In both 2008 and 2009 the operator held talks with MTN regarding a possible merger, but these finally ended after the two parties were unable to reach an agreement by the agreed deadline of 30 September (see sub-Saharan Africa: 1 October 2009: MTN and Bharti Airtel End Discussions over Potential Merger).
The transaction implies an equity value of US$9 billion and consideration will be fully satisfied in cash, according to a company press release, of which US$8.3 billion will be paid upon closing and US$0.7 billion will be paid one year from closing. Bharti Airtel will also assume US$1.7 billion of consolidated debt obligations. During March, Bharti said in a statement that it had raised US$8.3 billion from international banks, including Standard Chartered Bank, Barclays, Credit Agricole CIB, Bank of Tokyo-Mitsubishi UFJ, and the State Bank of India (see Kuwait: 22 March 2010: Bharti Confirms Financing for Acquisition of Zain's African Assets).
Outlook and Implications
Zain has been actively looking to sell off its African assets for almost a year. "The transaction allows Zain to focus on its highly cash generative operations in the Middle East and to substantially improve its balance sheet," said Nabeel Bin Salamah, CEO of the Zain Group, adding that "we are excited about the growth prospects of the Middle East and we believe Zain is well positioned to capture this opportunity." In August 2009 the operator confirmed that it was in talks with three international operators to sell all or part of its African operations (see sub-Saharan Africa: 17 August 2009: Zain in Fresh Talks to Spin Off African Assets—Report).
The Kuwaiti mobile operator MTC (now Zain) acquired pan-African mobile operator Celtel in 2005 for US$3.4 billion. Almost five years ago to the day, Celtel announced on 29 March 2005 that it had accepted MTC's offer (see World: 30 March 2005: Kuwait's MTC-Vodafone Enters Africa with US$3.4 bil. Cash Acquisition of Celtel). Under the terms of that deal, MTC acquired 85% of Celtel's issued and outstanding shares at the time for US$2.84 billion and the remaining 15% within two years of the closing date of the deal (see sub-Saharan Africa: 6 May 2005: MTC Announces Completion of Celtel Acquisition). On 7 May 2007, MTC made a final payment of US$467 million to acquire the remaining shares and take fully 100% of Celtel (see sub-Saharan Africa: 8 May 2007: MTC Concludes Acquisition of 100% of Celtel).
"Since we acquired Celtel in 2005, we have grown substantially to become one of Africa's leading mobile operators," said Asaad Al Banwan, Zain Group chairman, "and we are proud of the contribution Zain Africa has made to the development of communications across the continent. This transaction crystallises the significant value we have created for our shareholders over the last 5 years. Bharti Airtel has a fantastic track record in running successful operations in the emerging markets and we are delighted that the African telecom operations that we so assiduously built are becoming part of such a committed and reputable telecom powerhouse. We wish Bharti Airtel all the very best for their future success in Africa."