Wednesday 31 March 2010

Zain & Bharti SIGN $10.7B Deal



The adage “A picture is worth a thousand words” applies perfectly to the Zain deal signature picture above. Many people doubted the deal would go through even though there was a legitimate buyer, credit was available, and Zain desperately wanted to sell. Doubters had their reasons as Zain has failed to close several announced deals in the past. Moreover, Bharti had their share of failed takeover attempts as they recently failed to close the MTN Africa deal on two occassions. The picture above sets the record straight: Mr. Naser Al-Kharafi signing the Zain Africa sale with Mr. Sunil Bharti Mittal next to him and  Mr. Assad Al-Banwan, Chairman of Zain, appearing too.

The final transaction implies an enterprise value of $10.7B with $9 billion equity and $1.7 billion assumed debt by Bharti. Payment will be in cash with $8.3 billion paid upon closing and US$0.7 billion  paid after one year. Mr Asaad Al-Banwan commented on the transaction by stating: “This transaction crystallises the significant value we have created for our shareholders over the last 5 years.” Mr. Nabil Bin Salamah, CEO of Zain, shared his vision of Zain after the Africa sale by asserting: “The transaction allows Zain to focus on its highly cash generative operations in the Middle East and to substantially improve its balance sheet. We are excited about the growth prospects of the Middle East and we believe Zain is well positioned to capture this opportunity.” Mr. Sunil Bharti Mittal, Chairman and Managing Director, Bharti Airtel declared: “This agreement is a landmark for global telecom industry and game changer for Bharti Airtel. With this acquisition, Bharti Airtel will be transformed into a truly global telecom company with operations across 18 countries fulfilling our vision of building a world-class multinational.” This specific part reminded me of Saad Al-Barak’s (Zain’s previous CEO)  thoughts of Zain’s prospects when Zain initially bought Celtel Africa.

So, now what? It is imperative to acknowledge that yesterday’s Zain is a completely different animal from the one we have today. With this sale, Zain has transformed from a growth company to a value company. This entails various things such as a lower assigned multiple (EV/EBITDA) and lower stock appreciation. On the other hand, you would be owning a more stable company with a lower beta for its dividends. Anywanys, I want to hear what you guys think of this deal and what it means for Zain, shareholders of Zain, banks, and Kuwait.

No comments:

Post a Comment