Emerging market telecom M&A

Emerging market telecom deals, it has been said, are like shopping in a souk. Negotiations are often presaged by share-ramping rumours, then marked by half-deliverable promises and only eventually, maybe, sealed. So too with Wednesday’s crop: a putative $14bn offer from a mysterious Indo-Malaysian consortium to buy a 46 per cent stake in Kuwaiti-based Zain, and Vivendi‘s €2bn bid for Brazilian broad band operator GVT.

The Zain deal is the most opaque. The putative buyers include a Malaysian billionaire, little-known telecoms company Vavasi, and a state-controlled Indian company – which presumably requires government approval before it can move. At least Zain’s sellers - the Kharafi Group, with some 20 per cent, and unspecified other minorities representing another 26 - are keen. And why not, given the price? At around 11 times forecast earnings before interest, tax, depreciation and amortisation, Zain is being valued at almost twice the multiple of low-growth European telecom companies. Corporate governance niceties will be swept aside: Zain’s other minorities not only forego a premium they also lose effective control. The Kuwait Investment Authrority, with a 25 per cent stake will have to look after itself.

Vivendi, looking over its shoulder at these shenanigans, can afford a wry smile. Having abandoned talks with Zain in July, it aims to buy into Brazil instead. The catalyst for its offer is, again, two major shareholders that want to sell. Still, Vivendi’s deal is conditional on a waiver of anti-takeover provisions. And, at 9 times forecast ebitda, it is offering a rich price.

Both deals show the heights telecom companies are prepared to scale to buy growth. That will up the pressure on Bharti Airtel to improve its offer for South Africa’s MTN, another blockbuster emerging markets telecoms deal that may happen. Or not.END