Kuwaiti telecom Zain accepts $10.7 billion offer for Africa unit from India’s Bharti Airtel
Bharti Airtel’s $10.7 billion bid for the Africa assets of Kuwait’s Zain gives India’s largest telecom company a new chance to realize its dream of becoming an intercontinental emerging market phone giant as business grows tougher at home.
The planned deal, confirmed by both companies Monday, demonstrates India Inc.’s appetite to expand and marks a retreat back to the Arab world for Zain. The price tag — while worrying for investors, who sent Bharti shares tumbling — ranks the deal among the biggest overseas acquisitions in Indian corporate history.
A successful closure on the sale would make Bharti an even bigger telecom player in the developing world, where cellular phones are often the sole electronic gadget and primary means of communications for hundreds of millions of people. For Kuwait-based Zain, known officially as Mobile Telecommunications Co., the deal is a chance to finally cash in on an expansion led by its recently ousted chief executive, Saad al-Barrak, after a previous attempt to sell the African holdings failed.
Both companies struck a cautious tone in nearly identical brief statements Monday, after a trickle of unsourced reports anticipating the deal over the weekend.
“There can be no assurance that a transaction will be consummated,” the companies said, adding that the sale is subject to due diligence and regulatory approval.
The companies agreed to enter into exclusive talks until March 25 to work out details. The deal does not include Zain’s holdings in Sudan or Morocco.
Spokesmen for both firms declined to comment further.
Bharti, already India’s largest mobile phone company with 125 million domestic subscribers, has been trying to rapidly transform itself into an emerging market powerhouse. It pushed into Sri Lanka and Bangladesh over the past year, and now has about 4 million customers in those two countries.
Two earlier attempts to break into Africa, by merging with top South African phone operator MTN Group Ltd., were foiled after talks broke down. Bharti Airtel has no Africa operations now, but parent Bharti Group has a small telecom operation in the Seychelles.
The Indian mobile phone market has become increasingly crowded, sparking a brutal price war in the struggle for customers and spectrum. Faced with declining market share and slipping revenues at home, Bharti has been trying to replicate its low-cost business model abroad.
“It makes business sense to move from a fiercely competitive Indian market to Africa. We expect Bharti to apply the Indian learnings in Africa,” said V.K. Sharma, an analyst at HDFC Securities in Mumbai.
Bharti will have to make that case to investors.
Traders concerned the company was paying too much for Zain pummeled the stock Monday. Shares fell 9.2 percent to 285.4 rupees ($6.16) on the Bombay Stock Exchange.
“The market is seeing $255 per subscriber as an expensive buy,” Sharma said.
Bharti entered India’s telecom market in 1995, soon after the government opened the sector to private players. Back then, no one had mobile phones in the capital, New Delhi, and less than 10 percent of the population had landlines.
Today, about half of India’s nearly 1.3 billion people have mobile phones.
Much of the company’s growth now comes from rural India, which is still plagued by bad roads and irregular power, and where it sells prepaid cards for as little as 10 rupees ($0.20). Over the last five years, Bharti has invested billions of dollars to build its network and distribution outlets, sometimes using elephants to access remote areas.
Simon Simonian, an analyst at Dubai-based investment bank Shuaa Capital, said the operations Bharti is buying in Africa cover 42 million mobile subscribers across 15 countries.
He said Bharti was paying a premium for the businesses, but that the deal gives the Indian company “immediate access” to a prominent brand in multiple countries where new operating licenses would be hard to come by.
“Africa has become a more competitive market in the past few years,” he said. “The franchises of Zain are mostly No. 1 or No. 2 in these markets.”
The Zain operations Bharti will acquire are located in Burkina Faso, Chad, the Republic of Congo, Congo, Gabon, Ghana, Kenya, Malawi, Madagascar, Niger, Nigeria, Sierra Leone, Tanzania, Uganda and Zambia.