Zain Board Said to Accept Bharti Offer for African Assets

Zain’s board accepted an offer by Bharti Airtel Ltd., India’s largest wireless operator, to purchase most of its African assets, according to a person familiar with the matter. Bharti’s offer marks the Indian company’s third attempt to enter the continent.

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Bharti made a $10.7 billion offer for the assets, Al-Rai reported yesterday. Zain announced today in a statement to the Kuwait bourse that its board would meet to discuss an offer for its African assets, excluding Sudan and Morocco. Kuwait’s state- run KUNA news service said Zain’s board unanimously approved the transaction, without saying how it obtained the information. Trading in the shares was suspended.

New Delhi-based Bharti made an offer for Zain’s African assets and has been waiting for the Kuwaiti company’s approval, a person familiar with Bharti’s offer also said.

Bharti’s billionaire chairman and biggest shareholder Sunil Mittal is seeking to enter Africa, one of the world’s fastest- growing telecommunications markets, as competition intensifies on his home turf. His company failed last year to buy MTN Group Ltd. for about $23 billion, its second attempt to take over the South African company.

“The Indian market is moving towards saturation and it’s important for mobile phone companies to look at emerging markets such as Africa for growth,” said R.K. Gupta, portfolio manager and managing director at Taurus Asset Management in New Delhi. “My only worry is that there is this dangerous trend of Indian companies trying to buy overseas assets at any cost. If you get a company at cheap valuation or fair cost it’s O.K., but if you pay aggressively it’s going to affect profitability for years.”

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40 Million Subscribers

For Zain’s main shareholders, led by the Kharafi Group, the transaction would end almost a year-long effort to sell the company as a whole or in parts. Zain bought Celtel International for $3.4 billion in 2005 to expand into 13 African countries, including Kenya and Nigeria, the continent’s most populous nation.

The company has more than 40 million subscribers in Africa, about 62 percent of its client base. More than half of its $7.4 billion of annual sales in 2008 came from Africa, according to Bloomberg data.

Zain shares have soared 23 percent in the last week, giving the company a market value of 4.64 billion Kuwaiti dinars ($16 billion).

In the past year, Luxembourg-based Millicom International Cellular SA has said it would be interested in some of Zain’s assets. Also France’s Vivendi SA, the owner of the world’s largest music company, entered talks to buy the African assets last year, walking away in July, saying that the purchase didn’t fit “its usual criteria of profitability and financial discipline” for a potential investment.

MTN

In August, MTN said it may consider buying the African units of Zain if talks to merge with Bharti failed. The company may only consider the purchase if there are no “regulatory problems,” MTN Chief Executive Officer Phuthuma Nhleko said at a presentation in Johannesburg.

Bharti and MTN called off merger talks on Sept. 30, scrapping a transaction that would have been the world’s biggest cross-border deal last year. Abandoning talks for the second time in two years, Bharti said the structure of the deal failed to get approval from the South African government.

Bharti faces mounting competition in its home market in India. The company has slashed call rates to as little as 0.01 rupee a second to keep customers after overseas carriers including Japan’s NTT DoCoMo Inc. and Norway’s Telenor ASA entered the Indian market with cut-price plans.

Meanwhile, Zain’s many previous attempts to sell the group or some of its assets have failed. This month, Saad al-Barrak resigned as Zain’s chief executive officer after delays in the proposed sale of the company by the Kharafi Group, Zain’s second-largest shareholder.

Kharafi announced in September it signed a preliminary agreement to sell a 46 percent stake in Zain, valued at $13.7 billion, to a group led by India’s Vavasi Group and Malaysian billionaire Syed Mokhtar Al-Bukhary. At the time, the sellers and buyers pledged to complete the deal in four months.

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