Bharti, Zain Talk $10.7 B for African Business

123jump.com Staff
15 Feb, 2010
New York City

Bharti Airtel Ltd is in exclusive talk to acquire African assets from Zain or Mobile Telecom of Kuwait that may lead to $10.7 billion. The deal talks may face hurdle after Nigerian assets are likely to be excluded and shareholders find the purchase price too rich.

[R]10:40 AM New York, 8:50 PM Mumbai – Bharti Airtel Ltd is in exclusive talk to acquire African assets from Zain or Mobile Telecom of Kuwait that may lead to $10.7 billion. The deal talks may face hurdle after Nigerian assets are likely to be excluded and shareholders find the purchase price too rich.[/R]

India based Bharti Airtel Ltd is in exclusive to talks to acquire African mobile communication business from Kuwait based Mobile Telecommunications Co. or Zain.

The company is likely to pay as much as $10.7 billion for 42 million subscribers in Africa or nearly $250 per subscriber, the price that most analysts find too expensive and will certainly dilute the earnings.

Bharti Airtel stock declined 9.6% in Mumbai trading on the worries that the expensive acquisition will dilute the earnings and may be difficult to digest.

This is the second attempt by Bharti to enter the African market after it failed to complete a merger with South Africa based MTN Ltd.

Bharti is facing increasingly competitive market in India and revenue per new subscribers is sharply lower than the average of $12 a month. With the recent entry of NTT DoCoMo Inc from Japan and Norway based Telenor ASA, the total number of telecom providers has increased to 11.

Indian telecom market is the second largest in Asia after China based on the number of subscribers. But, Indian market is also one of the most competitive markets with the razor thin margins. The prices per call have dropped to nearly one tenth of a penny and are expected to drop even further with new promotions in the market.

Bharti is looking to expand into Arica as the growth in India is expected to slow down from the current rate of 15% with more than 300 million subscribers.

Mobile Telecommunications Company of Kuwait also known as Zain has subscribers in 15 African nations including Nigeria, Kenya and South Africa.

Nearly 22% of its revenues and operating earnings are from Nigeria where the ownership of Zain’s assets is in arbitration. The deal is likely to exclude Nigerian assets until the arbitration is resolved.

Zain is also saddled with $4.6 billion in debt and has struggled to generate profit in Africa. Zain has 65 million subscribers and nearly half of its revenues of $7.4 billion originate in Africa.

France based Vivendi SA walked away from making a bid for Zain’s African assets after it found the profitability very low and price too high for the acquisition.

Though the price per subscriber has dramatically fallen in the last three years in emerging markets from the peak of $1,000 in Europe to down to $250 per subscriber in Africa, they are still expensive when compared with the sharp decline in profitability per subscriber.

Vodafone Group Plc paid $10.7 billion for a controlling stake in Hutchison Essar Ltd that valued each subscriber at $720 and Vivendi acquires GVT Holding SA of Brazil for $4.18 billion for 2.3 million subscribers.

Bharti recently acquired 70% stake in Bangladesh based Warid Telecom for $300 million and 2.92 million subscribers.

Zain and Bharti are expected to complete their talks before March 25.