Bharti Airtel and Zain Africa “have agreed to enter into exclusive discussions until 25 March, 2010 for the acquisition of Zain’s African unit based on an enterprise value of 10.7 billion,” Bharti said in a statement.<\/p>\n
The plan is part of a drive by Bharti, India’s largest mobile phone operator, to keep up its growth momentum alongside its rapid push into rural India as the country’s urban mobile markets become saturated.<\/p>\n
The announcement sent Bharti shares plunging 5.45 percent or 18.15 rupees to 297.20 rupees by mid-day as analysts said it may face a challenge to make Zain a profitable company.<\/p>\n
“This acquisition is a long-term strategic necessary for Bharti to grow its revenues abroad with the domestic market saturating,” telecom analyst Harit Shah at Karvy Stock Broking told AFP.<\/p>\n
But Zain’s Africa operations are “not profitable at a net level — that will obviously lead to some kind of pressure (on Bharti’s finances) in the short term and hence the pressure on the stock,” Shah said.<\/p>\n
The announcement follows the collapse last year of a 25-billion-dollar deal between Bharti and South Africa’s MTN after Pretoria said the company might lose its national character. The deal would have created an emerging market telecom giant.<\/p>\n
“The Bharti-Zain tie-up is a fairly big deal and the main task will be to turn Zain around,” said another Mumbai analyst who did not wish to be named.<\/p>\n
Africa accounts for around 60 percent of Zain’s 65 million customers but contributes barely 15 percent to the group’s net profit.<\/p>\n
Last month, Bharti underscored its intent to expand globally with the acquisition of a 70-percent-stake in Bangladesh-based Warid Telecom, the country’s fourth-largest mobile firm in the fast-growing cellular market<\/p>\n
Bharti announced a fresh investment of 300 million dollars, raising its total investment to one billion dollars in Warid as part of the deal.<\/p>\n
Kuwait’s Al-Qabas newspaper quoted Zain chairman Asaad al-Banwan as saying the decision to accept Bharti’s proposal was “unanimous”.<\/p>\n
This means the representative of Kuwait Investment Authority, the emirate’s sovereign fund — the largest shareholder with a 24.6-percent stake — also approved the deal, an indication the government supports it.<\/p>\n
Last summer, Zain spurned a bid by French telecom and media group Vivendi, reportedly at between 10 billion and 11 billion dollars, saying the price was below expectation.<\/p>\n
Quoting unnamed sources, Al-Qabas said according to the initial agreement, Bharti must pay 10 billion dollars before mid-April and the remaining 700 million dollars by year end.<\/p>\n
The bid for Zain comes after Bharti reported its slowest profit growth in three years in the fiscal quarter to December.<\/p>\n
After years of soaring profits, industry revenues in the country of nearly 1.2 billion people are flattening as rivals slug it out in a savage price battle, forcing domestic companies to look farther afield for growth.<\/p>\n