Vivek New Proooo (2)
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Transcript of Vivek New Proooo (2)
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A
PROJECT REPORT ON
Acquisition of Bharti Airtel with Zain
SUBMITTED BY
Vivek Yadav
BBA 6TH SEMESTER
YEAR 2010-2011
UNDER THE GUIDANCE OF
Pradnya Kothari
(INTERNAL GUIDE)
SUBMITTED TO
UNIVERSITY OF PUNE
IN PARTIAL FULFILLMENT OF
GRADUATION IN FINANCE
(B.B.A)
SURYADATTA COLLEGE OF MANAGEMENT & INFORMATION
RESEARCH, PUNE 411030.
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Decl i
I, Mr. Vivek Yadav the stude t of Suryadatta Institute of
Management & Research, Karvenagar Kothrud, Pune (Batch 2008-
2011) hereby declare that I have completed the Project Report
entitled Acqui i i of B i Ai el wi Z i is written and
submitted by me to the University of Pune, in partial fulfillment of
the requirements for the award of degree of Bachelor of Business
Administration it is my original work and the conclusions drawn
therein are based on the material collected by myself from the
Company.
Date: _________ Vivek Yadav
Place: Pune. BBth
SEMESTER
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ACKNOWLEDGEMENT
This is my gratitude to all those people without whom this PROJECTwould
have never seen the light of day.
My project becomes a reality only because of co -operation of many people who
had helped me in completing this project. I sincerely extend my gratitude to
Mrs. Pradnya Kothari who has given me this golden opportunity to have an
insight in the corporate world and who has been a source of guidance and
support
I sincerely thank my esteemed guide Mrs. Pradnya Kothari (Fi ce)for her
valuable guidance and co -operation rendered to me throughout the project
report. It would not have been possible for me to complete this project without
their meticulous guidance and suggestions.
I give my thanks to Mrs. SurbhiBhuskute (B.B.A Co-ordi tor)and
MRS. VIDHYA SALUNKHE (PRINCIPAL SURYADATTA GROUPOF
INST
IT
UTE
) for their valuable contribution, co-operation and guidance fromtime to time for completion of this project.
Last but not the least I would like to thank my parents, friends, Colleagues who
directly or indirectly help me during the course of project without which project
would have been a Herculean task.
Vivek Yadav
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Content
Chapters
No.
Title oftheChapters Page No.
1 Objectives 06
2 ACQ ISITION 09
3
4
An Introduction to the Company
Bharti Airtel
An Introduction to the Company Zain
13
21
5Bharti shares up on Zain deal; execution a
challenge
25
6Bharti Airtel completes Zain acquisition
33
7 Key Drivers Of The Deal 34
8
Bharti Gets $8.3 Billion in Funding for ZainPurchase
35
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Objectives
o To understand the term Acquisition, on global platform.
o To study & to understand the various Legal Aspects
involved under such global M & A`s deal.
o To understand the criticalities & integrity involved like
what can be the payment structure, what can be the source
of funding etc. in such mega deal.
o To understand the strategy behind, why a particular
successful firm need to enter in to such M & A`s form of
business & what can be the long term advantages of the
same.
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ACQUISITION
When one company takes over another and clearly established itself as the new
owner, the purchase is called an acquisition. From a legal point of view, the Target
company ceases to exist, the buyer "swallows" the business and the buyer's stock
continues to be traded. Like TATA`s acquisition of Land Rover & Jaguar from Ford
& Tea Brand Tetley of U.K./Steel Company Corus of U.K.
Sector Volume USD mn %
Telecom 6 13,518 52
Pharma & 21 4,854 19Metals, Ores & 6 2,524 10
Banking & Financial
Services 18 2,192 8
FMCG, Foods &Beverages 9 541 2
Top 5 Acquisition Sectors - 2010
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An Introduction to the Company
Bharti Airtel
Founder, Chairman and Group CEO : Sunil Bharti Mittal
Established : July 07, 1995, as a Public Limited Company
Business description:
Provides GSM mobile services in all the 22-telecom circles in India, Srilanka,
Bangladesh and now in 15 Countries of Africa.
Provides telemedia services (fixed line and broadband services through DSL)
in 88 cities in India.
Also offer suite of Enterprise solutions, DTH and IPTV Services
It is one of Asias leading integrated telecom services providers with
operations in 19 countries across Asia and Africa.
It is structured into four strategic business units - Mobile, Telemedia,
Enterprise and Digital TV.
The mobile business offers services in India, Sri Lanka and Bangladesh.
Acquirer Target % Stake USD mn
Bharti Airtel Zain Africa 100% 10,700
Abbott Labs Domestic
Formulations
Business of PrimalHealthcare
European Solutions to
100% 3,720
Hinduja Group
Private Bankers
100% 1,863
GTL Infrastructure Aircel's 17500
telecom towers
100% 1,787
Vedanta Resources Zinc business of
Anglo American Plc
100% 1,340
Top 5 Acquisition Deals - 2010
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Telemedia business provides broadband, IPTV and telephone services in 94
Indian cities.
Bharti Airtel is the leader in Indian Wireless market with 24.0% market
share, followed by Reliance Communications 18.3%,Vodafone 17.5 %.
Its Mobile Services partners are Nokia Siemens, Ericsson, Huawei.
Telemedia & Long Distance Services partners are Nokia Siemens, Juniper,
Cisco, Alcatel Lucent, ECI, and Tellabs.
Call Centre Operations partners are IBM Daksh, Hinduja TMT,
Teleperformance, Mphasis, First source & Aegis.
Today, Airtel innovates in almost everything that it presents to the market. An excellent
example is Easy Charge - India's first paperless electronic recharging facility for prepaid
customers. As evidence of its fine record, Airtel has also been conferred with numerous
awards. It won the prestigious Techies Award for 'being the best cellular services provider'
for four consecutive years between 1997 and 2000 - a record that is still unmatched. And in
2003, it received the Voice & Data Award for being 'India's largest cellular service provider',
amongst others.
An Introduction to the Company
Zain
(Zain was established in 1983 in Kuwait as the region's first mobile operator)
Services include:
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.
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
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Zain, formerly MTC, was the first mobile telecommunications company in the
Middle East when it started its operations in Kuwait back in 1983.
Its subsidiaries include; Mobile Telecommunications Company Lebanon (MTC)
SARL, Lebanon, and Sudanese Mobile Telephone (Zain) Company Limited,
Sudan.
It is a public company engaged, together with its subsidiaries, in the provision ofmobile 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.
Zain Africa is Wholly owned subsidiary of Zain, incorporated in Netherlands and
held the African operations of Zain.
ZAIN ANNOUNCES HALF-YEAR 2010
FINANCIAL RESULTS
Period highlighted by Middle East revenues of US$2.33 billion, a year
on year increase of10%
Net Income soars 488% to US$3.085 billion (including capital gain of
US$2.653 billion from the sale of Zain Africa)
Number of served customers reaches 34.2 million, an increase of 28%
Kuwait, August 9, 2010
Zain announces its consolidated financial results for the half -year,
ending 30 June, 2010.
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H1, 2010 KeyPerformance Indicators (in KuwaitiDinars & USD)
Total Managed Active
Customers34.2 million up 28% on
H1, 2009Consolidated Revenues KWD 672.6 million (US$2.33
billion)
EBITDA KWD 287.2 million (US$ 995
million)
EBIT KWD 206.8 million (US$ 716million)
Net Income (including capital
gain)
KWD 895.3 million (US$ 3.085
billion)Earnings Per Share Fils 232 (US$0.80)
Bharti shares up on Zain deal;
execution a challenge
Bharti Airtel now needs to work on getting regulatory clearances for its $9 billion dealto buy 15 African operations of Kuwaiti telecom Zain, and turning around the loss-making assets would be its priority. The acquisition, which would help Bharti become
the world's No. 5 wireless firm by subscribers with presence in 18 countries, alsocomes with tough financial and management challenges for the Indian mobile marketleader already battling a highly-competitive home turf.
"A big challenge is streamlining operations across all these countries with limitedresource availability," said Kamlesh Bhatia, principal analyst at research firm Gartner."They also have to turn the company around in the fastest time possible."
Bharti shares rose as much as 2.7 percent on Wednesday morning after the companysigned definitive agreements with Zain late on Tuesday. At 0518 GMT, the shareswere trading 1.3 percent up in a Mumbai market that was down 0.1 percent.
The deal would give Bharti 42 million subscribers in 15 African countries, which havea combined estimated annual revenue of $3.6 billion, but are currently making losses."The main challenge forBharti lies in raising revenues and adding subscribers as Zainhas been losing both in some of the countries," said Amit Ahire, analyst with AmbitCapital.
Also, issues in Gabon and Nigeria are examples of what Bharti is going to face in a
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new continent. The government ofthe small central Africannation of Gabonweighedin on Mondayagainstthedeal, saying Zain Gabon hadnot compliedwith regulationsand that it reserved the right to take "all necessary measures".
Minority ownership of Zain's operations in Nigeria, thebiggestmarketinthedeal, isalso indispute. "Gabonis a very smallmarketandinmost cases regulators canalwaysbedealtwith. But Nigeriais abiggerstumbling block, becauseitis akeymarketand
shareholders are always tricker to deal with," said Gartner's Bhatia.
Bharti Chairman Sunil Mittal has said the companywouldworkwith regulators andexpected "tremendous support" in countries including Gabon. Bhartiwouldalso talkto theminority shareholders in Zain Nigeria. Bharti is paying $9 billion in cash toZain, whatmanyregardas a fullprice, andafterassumption of $1.7 billion ofdebt onthe target firm's books, the deal is valued at around 10 times EBITDA, more thanBharti's own valuations.
Bharti has secureddebt of upto $8.5 billion froma clutch oflenders to fundthedealandmay have to spendmore to expand thenetworks, which analysts say havebeen
under-invested foryears. Andadding to thatwouldbe spending fornextmonth's 3Gspectrumauction in India, which analysts estimate could costa firm upto $2 billion
just forthelicence.
Bh r A r e o e e
q o
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Bharti Airtel Chairman and CEO Sunil Mittal (centre) with Bharti Enterprises Deputy
Group CEO Akhil Gupta (left) and Bharti Airtel CEO International Manoj Kohli at a
press conference in New Delhi.
Becoming the world's fifth largest mobile operator, Sunil Mittal led Bharti Airtel onTuesday announced that it had completed the acquisition of Zain Telecom's Africaoperations for $10.7 billion.
The company has now 180 million subscribers in 18 Asian and African nations. Thecompany announced that it would launch the Airtel brand in Zain's operations in allthe 15 nations in October.
Announcing the completion of the deal at a press conference here, Bharti groupChairman Sunil Mittal said the transaction is the largest ever cross-border deal in an
emerging market and will result in combined revenues of about $13 billion.''
Bharti finally entered Africa after aborting negotiations twice for merger with MTNsince 2008, with Mr. Mittal stating that in the Zain's case Airtel would have a totalcontrol.
He said Zain Africa would now be 100 per cent subsidiary of Bharti International.This deal would signal many new investments that would go to Africa, he added.
At present, China Mobile is the world's largest mobile player with a subscriber base of522 million, followed by Vodafone (348 million), Telefonica (206 million) andAmerican Movil (201 million).
AFRICA STRATEGY
Elaborating on Africa strategy, Bharti's international operations in-charge ManojKohli said the company had set a target of 100 million subscribers and $5 billionrevenues by 2012-13.
Bharti has acquired Zain Telecom's operations in 15 African nations, excluding Sudanand Morocco. Zain has operations in 17 countries in the region and is claiming to bethe second largest operator afterMTN.
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Asked whether he regretted missing a deal with MTN twice and whether that was hisfirst choice, Mr. Mittal said MTN was the first opportunity that was available at thattime. In MTN's case, we would have had board control but no management controland no change in brand.
There were compromises to be made (in MTN). Zain is the second largest operatorand that is the only difference. But we will have full control and our own brand.''
With this acquisition, we will have an unparalleled footprint in one of the fastestdeveloping regions in the world. We are looking at more opportunities as we buildmore roll outs in Africa,'' he remarked.
The company has also reached a settlement with Broad Communications, the singlelargest shareholder in Zain Nigeria, following which its chief Otudeko would nowhead Bharti's operations in Nigeria.
Key Drivers Of The Deal
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Bh r A r e sh re shoo s up o
Zain deal
Shares of Bharti Airtel gained nearly threeper cent on the Bombay Stock
Exchange (BSE) after the Indian firm announced signing of themega $10.7-
billiondealto acquire Kuwait-based Zain Telecom's Africa . business.
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After a firm opening, Bharti shares surged 2.75 per cent to a high ofRs 319.50.
Under the agreement, Bharti would acquire Zain's African mobile operations in
15 countries for an upfront payment of $8.3 billion and pay another $700million after a year. Besides, it would take debt liability of $1.7 billion.
On the National Stock Exchange (NSE), too Bharti Airtel moved up 2.85 per
cent to Rs 319.70. Over 23 lakh shares changed hands on the two bourses in
morning trade.
The two companies had entered into exclusive talks on February 15. Since then
the stock has gained Rs 33 a share or nearly 12 per cent.
With the acquisition, Bharti Airtel will enter the world's fastest growing
telecom market in Africa. The two businesses combined will have more than
179 million subscribers with total revenue of $13 billion.
With this deal, Bharti Airtel is set to become the world's fifth largest wirelesscompany with operations in countries including, Kenya, Nigeria, Uganda and
Zambia.
Bharti Gets $8.3 Billion in Funding
for Zain Purchase
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Bharti Airtel Ltd., Indias biggest mobile-phone company, said it obtained $8.3billion in funding for its proposed acquisition of Zains African assets; a day after itsboard gave approval for a formal offer this week.
Bharti will get $7.5 billion in loans from a group of banks led by Standard CharteredPlc and Barclays Plc, the New Delhi- based company said in an e-mail statement.
Bhartis board yesterday approved the planned $9 billion purchase of the Africanwireless assets of Zain, Kuwaits biggest phone company, according to two peoplewith knowledge of the negotiations. The carriers have until March 25 to reach anagreement that would give Indias largest mobile-phone operator 42 million newsubscribers in 15 African countries.
Bharti shares have declined 5.4 percent this year, trailing a 0.6 percent advance by the benchmark Sensitive Index. The stock was the second-worst performer of 87companies on the Bloomberg World Telecommunications Index in the past sixmonths.
FINANCING
The phone operator was seeking a six-year $8.5 billion loan with an average life of4.75 years, two people with direct knowledge of the matter said last week. Bharti may
pay interest of 2 percentage points more than the London interbank offered rate, thepeople, who declined to be identified, said.
Senjam Raj Sekhar, a Bharti spokesperson, declined to comment on the interest rateoffered on the financing announced today. The company will get a rupee loanequivalent to as much as $1 billion from the State Bank of India, which would also
cover transaction costs, Bharti said.
The other banks participating in the financing led by Standard Chartered and Barclaysinclude State Bank of India, Australia & New Zealand Banking Group Ltd., Bank ofAmerica Merrill Lynch, BNP Paribas SA, Credit Agricole CIB, DBS Group HoldingsLtd., HSBC Holdings Plc, Bank of Tokyo-Mitsubishi UFJ Ltd. and Sumitomo MitsuiBanking Corp., Bharti said.
Global Investment House KSCC is acting as regional financial adviser on the deal,Bharti said.
ZAIN CLIMBS
Zain climbed as much as 2.9 percent to the highest level in five months in Kuwaittrading on speculation of Bhartis formal bid before closing 1.5 percent higher at
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1,380 fils. The stock has gained 35 percent this year, outperforming a 5.7 percentadvance by the benchmark Kuwait Stock Exchange Unweighted Index.
Due diligence for the proposed acquisition of its African assets by Bharti isproceeding smoothly and as planned, Zain said in an e-mail statement today. Zainsboard will meet on March 24 to discuss the latest developments, it said.
Bharti has sought overseas businesses as competition at home has reduced call ratesfor many of its 122 million Indian subscribers to as little as half a U.S. cent a minute.This is Bhartis third attempt to enter Africa, after being thwarted twice in efforts tomerge with South Africas MTN Group Ltd.
The Indian carrier wont materially lose value on the deal, G.V. Giri, an analyst atIIFL Capital Ltd. in Mumbai, said yesterday. Bharti may overpay by as much as $1
billion to $1.5 billion and should be able to recover that through cost cutting, he said.Giri maintained his buy rating on the stock.
NIGERIA PROTECTION
Zain may be asked to provide Bharti legal protection from a dispute in Nigeria, one ofthe people said yesterday, declining to be identified because the discussions arent
public. The board didnt specifically ask for the protection, and was satisfied with theproposals that Bharti management made with regards to Nigeria, the second personsaid.
Econet Wireless Holdings Ltd., based in a suburb of Johannesburg, is disputingcontrol of Zains unit in Nigeria.
The Nigerian operations are the single-largest revenue producer for MobileTelecommunications Co., known as Zain, and have been described by BhartiChairman Sunil Mittal as the most important piece of its planned purchase.
ACCUMULATE BHARTI AIRTEL
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Bharti Airtel is showing a negative move on the basis of news thatBharti Airtel Offers $10.7 Billion for Zain African Assets,Bharti Airtel Ltd, SouthAsias largest mobile phone company offered 10.7 billion U.S. dollars for the majorityof African assets Zain Kuwait, a move which would lead to one of the largestemerging markets-phone operators.
Quarter No. Q 3
Difference
Q1+Q2+Q3
Difference
PeriodEnding
Dec-2009 Dec-2008Till Dec-
2009Till Dec-
2008
TypeUn-
AuditedUn-
AuditedUn-Audited Un-Audited
Net Sales /
InterestEarned /OperatingIncome
87,554.50 88,301.10 -0.85 % 266,976.20 249,974.90 6.80 %
TotalIncome
87,715.60 88,502.50 -0.89 % 267,549.50 251,053.70 6.57 %
Expenditure 54,503.60 54,762.40 -0.47 % 162,699.70 155,431.50 4.68 %
OperatingProfit (Rs.
in Millions)
33,212.00 33,740.10 -1.57 % 104,849.80 95,622.20 9.65 %
Interest -2,256.60 4,016.60-156.18
%-5,758.20 14,191.80
-140.57%
ProfitBeforeDepreciation and tax
35,468.60 29,723.50 19.33 % 110,608.00 81,430.40 35.83 %
Depreciation
9,901.80 8,143.80 21.59 % 28,872.20 23,039.50 25.32 %
Profit beforeTax
25,566.80 21,579.70 18.48 % 81,735.80 58,390.90 39.98 %
Tax 2,445.80 1,406.80 73.86 % 8,770.30 1,702.30415.20
%
Profit afterTax
23,121.00 20,172.90 14.61 % 72,965.50 56,688.60 28.71 %
Net Profit 23,121.00 20,172.90 14.61 % 72,965.50 56,688.60 28.71 %
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(Rs. inMillions)
EquityCapital
18,984.80 18,982.20 0.01 % 189,848.00 189,822.00 0.01 %
Reserves331,223.6
0240,860.9
037.52 %
3,312,236.00
2,408,609.00
37.52 %
Basic AndDiluted EPSafterExtraordinary item
2.40 1.10 118.18 % 6.20 3.00106.67
%
OperatingProfitMargin
379.30 382.10 -0.73 % 392.70 382.50 2.67 %
Net Profit
Margin 264.10 228.50 15.58 % 273.30 226.80 20.50 %
Cash EPS 60.90 106.30 -42.71 % 263.00 298.70 -11.95 %
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S ructureofAcquisition
[*The fifteen jurisdictions are: 1) Burkina Faso, 2) Chad, 3) Republic of the Congo, 4)
Democratic Republic of the Congo, 5) Gabon, 6) Ghana, 7) Kenya, 8) Malawi, 9) Madagascar,
10) Niger, 11) Nigeria, 12) Sierra Leone, 13) Tanzania, 14) Uganda & 15) Zambia.]
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TransactionDetails ofBharti Airtel-Zain
Acquirer Bharti Airtel Limited
Seller Mobile Telecommunications Company KSC
Target Zain Africa International BV
Acquisition Bharti Airtel Limited indirectly acquired 100% of ZainAfrica International BV and its business operations inAfrica from Zain under a privately negotiatedagreement.
Mode of acquisition Security (Share) Sale
Consideration USD 10.7 billion
Mode ofPayment All cash deal Bharti Airtel to pay:a) USD 8.3 billion within three months from the date ofclosing,
b) USD 700 million after one year from the date ofclosing,c) USD 1.7 billion assumed as debt on the books ofZain.
Funding Leveraged Buy-outa) Bharti Airtel to borrow USD 7.5 billion from aconsortium of banks led by Standard Chartered Bankand Barclays Bank.
b) Bharti Airtel to avail of a rupee loan of USD 1 billionequivalent from SBI Group.
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Problems in the Execution of the
Deal
NIGERIAN HURDLE
Econet Wireless International:
A major telecom player in Nigeria, wanted to use its pre-emption
Rights of right of first refusal in respect of shares had been breached
When Econet"s predominantly Nigerian partners decided to sell their
Shares in Vie Networks (or V-Mobile) to Zain in 2006.
Econet has also applied for interim measures to prevent Zain from selling,
transferring, disposing of, dealing with or otherwise encumbering the disputed
stake until the matter is resolved.
Until the time the ownership issue over Zain Nigeria is resolved, Zain faces a
hurdle in transferring its Nigerian assets to Bharti Airtel.
CONGO CONTROVERSYThe Government ofRepublic ofCongo said that they had not been
informed of Bharti Airtels deal with Zain and that the deal was a
clear violation of the law in our country.
The Government also claimed that the deal is in contravention to
Zain`s local mobile license.
Until it would be difficult for the Bharti to get all regulatory
upproval.
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GABON GLITCH
In this case, the Government of Gabon raised a regulatory objection to the
deal alleging that Zain had not complied with certain telecom regulations
in Gabon.
The Gabonese Government has disapproved the sale of Zain`s Gabonese
assets & reserves the right to take all necessary measures.
But off late, Government of Gabon gave its approval to the sale of Zains
assets in Gabon to Bharti.
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SWOT Analysis of the Deal
STRENGTH: Post acquisition, Bharti Airtel will become fifth largest service provider
in terms of the number of subscribers.
The deal would give Bharti 42 million subscribers in 15 African
countries, which have a combined estimated annual revenue of $3.6
billion
Bharti, largest telecom player in India, can replicate the success of India
in Africa
Strategic Alliance with other stake holders, including Nokia, SingTel &
Sony Ericson
WEAKNESS: Bharti has paid a heavy price for the deal
Zain Africa has made a net loss of USD 112 million in the nine months to
September 2009. Seven of Zains African units are loss -making,
including its highest revenue earner, the Nigerian arm, Zain Nigeria.
The deal is highly volatile and carries huge commercial risk forBharti
Airtel
The loan would be a drag on Bharti Airtel's earnings with no immediate
returns expected from the loss-making target.
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OPPORTUNITY:
Telecom penetration in African countries varies from 37 per cent to 65
per cent. There are few markets with penetration less than 40 percent
The African market is homologous to Indian market in term of its
structural similarities.
Monthly ARPU on the Continent averages USD 7.5, which is higher than
Indias ARPU of USD 5
Africa is too good an opportunity for Bharti Airtel to experiment the
model that it has mastered in India, particularly its rural strategy.
THREAT:
Zain Africa is in trouble and financial paralysis is looming over its
head
Bharti Airtel will have to put in a lot of effort to align the varied
cultures; with 15 countries to tackle it definitely will be a nightmare.
Bharti-Zain will be getting a tough fight with rival like MTN and
China Mobile
There are greater political and economics risks in Africa .
Most of the countries are political unstable and operation are still loss
making.
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CONCLUS ONOFTH D AL
Inthelargestevertelecomtakeoverbyan Indian firm, Bharti Airtel on Tuesday
completedadealto buy Kuwait-based Zain Telecom's Africanbusiness for
$10.7 billion (about Rs 48,000 crore).
Announcing the closure ofthedeal, Sunil Mittal said, "Wearedelightedatthe
closure ofthis transformationaldeal forIndiaand Bharti Airtel. Thetransaction
is thelargestevercross-borderdealinanemerging marketandwillresultin
combinedrevenues ofabout $13 billion."
On March 30, 2010, Bharti hadenteredthedealto acquire Zain Telecom's
operations in 15 nations, excluding Sudanand Morocco. Zain has operations in
17 African countries.
The closure ofthedealimplies that Bharti has receivedalltheapprovals from
the governments andregulators ofeach ofthese 15 nations.
This acquisition, besides giving Bhartiits much-desiredpresencein Africa ,makes ittheworld's fifth largestwireless companywith operations across 18
countries anda subscriberbase ofaround 179 million.
Bharti had failedtwiceinthelasttwo years to forgean $23 billionmergerdeal
with South Africantelecom giant MTN.
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The Zain acquisition, the second largest by an Indian entity after Tatas' Corus
deal, would take the revenue of the combined entity to an estimated $13 billion.
The African business would widen Bharti's reach, which was hitherto restricted
to Asia and the Indian Ocean region with businesses in Sri Lanka, Bangladesh
and Seychelles.
Of the $10.7 billion enterprise value of Zain, Bharti will be paying $8.3 billion
upfront and $700 million after a year. It would also take over approximately
$1.7 billion of Zain's debts as on December 31, 2009.
Of the $8.3 billion paid to Zain, Bharti has raised debt from a consort ium of
foreign banks and State Bank of India with the lead-arranger and lead-advisor
Standard Chartered Bank committing the highest amount -- $1.3 billion,followed by Barclays at $900 million.
The rest of the co-advisors -- ANZ, BNP, Bank of America-Merrill Lynch,
Credit Agricole CIB, DBS, HSBC, Bank of Tokyo-Mitsubishi UFJ and
Sumitomo Mitsui Banking Corporation -- have allocated $600 million each.
State Bank of India has agreed to an up to USD one billion loan in rupee terms.
With Bharti Airtel sealing the $10.7-billion takeover deal for African assets ofZain , corporate India's outbound merger and acquisition (M&A) activity in2010 so far has touched $15 billion.
The deal marks the second biggest overseas acquisition by an Indian company,after Tata Steel purchased Corus Group for $12.2 billion in an all cash deal in
January 2007.
The Corus deal was the largest Indian takeover of a foreign company and madeTata Steel the world's fifth-largest steel group.
The acquisition of Zain's African assets would catapult Bharti Airtel to becomethe fifth largest telecom operator in the country with revenues of an estimated$13 billion and a subscriber base of over179 million.
Led by Bharti-Zain, the outbound M&As by Indian corporate have touched $15billion across 23 deals between January- March 23, 2010, according to ArunNatarajan, CEO of Venture Intelligence.
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REASONS FOR FAILURE OF
BHARTI AIRTEL Ac uisition WITHMTN Telecom
Finance Minister Pranab Mukherjee on Thursday described the failure of talksbetween India's telecom giant Bharti Airtel and South Africa's MTN on theUSD-23 billion merger deal as "part of the game".
"You know sometimes amidst the big companies ... these deals becomesuccessful, sometimes these deals fail. This is part of the game," Mukherjeetold.
The proposed mega deal, which would have been the world's largest in thetelecom sector, fell through for the second time in just over a year after the endof the exclusivity period yesterday.
Sunil Mittal-led Bharti called off discussions with MTN citing the SouthAfrican government's rejection of the proposed merger structure, which wouldhave created the world's third largest telecom company with combined revenuesof over USD 20 billion annually and a subscriber base of over 200 million.
The deal failed as the Indian laws did not provide for dual listing of shares,which was being insisted by the South African government.
When asked if the deal termination had political reasons more than legal issues,Mukherjee said, "I am not making any comment on this. I have st ated you thefact."
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Bharti Airtel: Reasons behind The
Downgrade
Telecom major, Bharti is in talks to buy Kuwaiti telecom firm ZainsAfrican business, excluding Morocco and Sudan. It is the Indian firmsthird attempt at gaining a foothold in a continent that offers a lastopportunity for major subscriber growth.
The deal marks one of the biggest cross-border transactions in the MiddleEast in years. Bharti has lined up USD 9 billion in loans from foreign andlocal banks for its planned acquisition. Global rating agency Standard &Poors has placed Bharti on credit watch with negative implications postthis bid.
The reason S&P placed BBB- credit rating on Bharti on a credit watch
negative on Friday was the direct result of the announ cement that thecompany has made about their plans to acquire Zain, Africa. Most of thereason for that is that it really has to do with the financing plan that would be used to execute that acquisition. That financing plan is largelycomprised of debt as far as we have been informed.
That financing plans could change going forward but at the moment I amassuming it would be a debt funded acquisition. The amounts would be
anywhere between USD 7-9 billion of additional debt to what thecompany already has on its books. In terms of its debt, as we look at it,we at S&P may look at the debt a bit differently than maybe otheranalysts in the sense that we do add back. We adjust some of theoperating leases that the company has and consider that as debtequivalent.
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