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Largest ever MENA disposal

Largest ever MENA disposal

9 December, 2010

Sunil Bharti Mittal, the billionaire chairman of Indian telco Bharti Airtel, was pretty keen to get his hands on the African operations of Kuwait-based Zain after two previous failed attempts to buy South Africa’s MTN. Flying into Kuwait in February this year, Mittal meant business. This time, he wasn’t going to leave without sealing the deal. He was personally taking charge of negotiations.

After all, he had already lost out twice over the course of two years in his pursuit of Africa’s largest mobile player, MTN. He was not about to lose out again and miss the opportunity to make his mobile phone business – Bharti Airtel – into the world’s fifth largest player in terms of subscribers, with 179m users.

With a telecoms environment in India both highly competitive and regulated, Mittal was seeking alternative sources of growth. In Africa, he saw the opportunity to turn around Zain by transposing Bharti Airtel’s low-cost, pre-pay mobile phone business model to millions of people in Africa.

Indeed, the African mobile story is potentially a huge money-making one: just four years ago, only 15% of Sub-Saharan Africa used a mobile phone; now it is 45%.

With such stats in mind and determined to win, Mittal sat facing Zain’s controlling shareholder Nasser Al-Kharafi, the Kuwaiti billionaire.

Significantly, Kuwait’s sovereign wealth fund, the Kuwait Investment Authority (KIA), remained a “compliant” investor in Zain with a 24.6% stake. In other words, KIA went along with Nasser Al-Kharafi when it came to the sale of the African operations.

Mittal was prepared to pay the staggeringly high price of US$10.7bn: a 10.5x multiple of enterprise value to Ebitda for the previous 12 months. That compares, for example, with a 6.2x multiple that Russian-controlled telecoms group VimpelCom had offered to pay for Weather Investments, which controls a whole host of African telecoms assets.

No doubt a substantial dividend from the sale of the African businesses will go a long way towards helping Kharafi pay down debt on any businesses impacted by the global financial crisis within his family empire, which ranges from gas turbines and real estate to KFC and Pizza Hut franchises.

Kharafi was always adamant that the African sale was not about the financial pressures he may have been experiencing at the time, but about Zain wanting to focus on the Middle East rather than Africa, while Bharti Airtel wanted to enter Africa.

Still, before Kharafi had received a binding offer from Mittal on February 14 this year, he had already started a separate process several months before for Zain to sell a 46% stake in itself. That process is still ongoing as UAE telecoms group Etisalat waits to close the US$12bn deal.

After just six weeks of due diligence across 15 African jurisdictions, Bharti Airtel and Zain had signed a deal for the African businesses; and, after securing multiple regulatory approvals and having negotiated billions of dollars in debt waivers due to a change of control trigger, the deal closed on June 8.

UBS and BNP Paribas acted for Zain, while Global Investment House of Kuwait (KSCC), Standard Chartered and Barclays advised Bharti Airtel. Thomson Reuters’ financial league tables also gave credit to both HSBC and Morgan Stanley for advising Bharti.

The US$10.7bn sale of Zain Africa to Bharti Airtel is Acquisitions Monthly’s cross-border deal of the year.

Wed, 22 October, 2014

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