25-08-2017, 09:32 PM
M&A LAB
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EXECUTIVE SUMMARY
On February 15, 2010, Bharti Airtel announced that it had entered into exclusive discussions with Mobile Telecommunications Company KSC (“Zain”) for the acquisition of Zain Africa International BV (“Zain Africa”) and thereby the entire African operations of Zain, excluding the operations in Sudan and Morocco. With bitter experience to haunt, Bharti Airtel strategically played it safe this time and made an offer to Zain which it just could not refuse. For a commercially ailing Zain, Bharti Airtel‟s offer of USD 10.7 billion was a jackpot.
On March 30, 2010, Mr. Sunil Bharti Mittal, Chairman and Managing Director of Bharti Airtel and Mr. Asaad Al, Banwan, Chairman, Zain Group executed the definitive agreements at Netherlands marking the transformation of Bharti Airtel into an emerging-market multinational. The acquisition is the largest by an Indian company, second only to the USD 12 billion takeover of Corus by Tata Steel in 2007.1 In the Indian telecom space, the deal is the second largest after the USD 11.2 billion (approximately) Vodafone Hutchison transaction in 2007. Would the transaction prove to be expensive for Bharti Airtel? What attracted Bharti Airtel to takeover Zain Africa? What will be Bharti Airtel‟s strategy for Zain Africa and the African continent? How have the investors reacted to the deal? Is the Bharti Airtel – Zain deal comparable to the failed Bharti Airtel – MTN proposed transaction? What will be the equation between Bharti Airtel and MTN? These are some of the commercial considerations that we try to analyze in this M&A Lab along with the relevant legal, regulatory and tax aspects involved in the deal.
Bharti Airtel
India‟s first private telecom services provider with a footprint in all the 23 telecom circles. Widely regarded as India‟s largest telecom service provider in terms of annual revenues, Bharti Airtel provides mobile & fixed wireless services using GSM technology across all the telecom circles along with broadband & telephone services in 94 cities. All these services are provided under the „Airtel‟ brand. Bharti Airtel, as we understand, also has licenses to operate telecom operations in Sri Lanka and Seychelles. In January
Zain
Zain was established in 1983 in Kuwait as the region's first mobile operator. It is a public company engaged, together with its subsidiaries, in the provision of mobile telecommunication and data services, including operation, purchase, delivery, installation, management and maintenance of mobile telephones and paging systems in Kuwait and 21 other countries in the Middle East and North Africa. Its wholly owned subsidiaries include; Mobile Telecommunications Company Lebanon (MTC) SARL, Lebanon, and Sudanese Mobile Telephone (Zain) Company Limited, Sudan.2
Zain Africa
Wholly owned subsidiary of Zain, incorporated in Netherlands and held the African operations of Zain. The company was originally named Celtel which was acquired by Zain in 2005 and renamed as Zain International BV. The same has been acquired by Bharti Airtel now through Bharti Airtel Netherlands BV.
M&A Lab Bharti-Zain Deal
foreign exchange exposure as the equipments will be purchased in dollars but the revenue will be generated in local currencies.20 The extremely high cost of acquisition, interest payable on loans availed and meager revenues for next few years make this deal a very costly investment for Bharti Airtel.
What attracted Bharti Airtel to takeover Zain Africa?
Bharti Airtel, clearly motivated by its African dreams, paid a glaring „opportunity cost‟ to take over Zain Africa. Experts comment that the deal is overpriced and Zain Africa is not a worthy investment. Did Bharti Airtel make a mistake by choosing Zain Africa? Did Bharti Airtel act in haste and made a wrong decision? Will Bharti Airtel be able to repeat its Indian success in Africa? Questions are aplenty and we attempt to find few answers.