A lot has changed for Zain since the heady days of 2005, when the company then known as MTC bravely bought Celtel, an entrepreneurial company present in 13 African countries. MTC, led by the charismatic Dr Saad al Barrak, had already established a…
A lot has changed for Zain since the heady days of 2005, when the company then known as MTC bravely bought Celtel, an entrepreneurial company present in 13 African countries. MTC, led by the charismatic Dr Saad al Barrak, had already established a healthy footprint in the Middle East and was one of the first international groups to recognise the potential of sub-Saharan Africa’s low penetration rates.
Now, Zain is a shadow of its former self. After an emotional year that has seen the company sell its African business to Indian superpower Bharti, and fail at the last moment to sell the remaining Middle East assets to its regional rival Etisalat – all at
the behest of powerful shareholding group the al-Kharafis, rather than management – it is unclear how it can pick up the pieces.
Firstly, there is no inspiring leader. A year ago, Dr Saad was relegated to Saudi Arabia to head up Zain KSA, and in February, COO Barrak al-Subaith, CSO Haitham al-Khaled, and adviser to the CEO Salah al-Fouzan all stepped down, at the same time that staff numbers were cut by 40%.
Multiple industry sources say that everything is uncertain until Zain holds its AGM/EGM on 12 April. The expectation is that there will be significant changes at the board level, including the chairman – and if local rumours are to be believed, one of Nasser Al-Kharafi’s sons may become chairman.
Secondly, it will be difficult to shake the image of being a target. While Etisalat could in theory come back to the table, most believe it is extremely unlikely. It is believed to have found something it didn’t like in the due diligence, and was put off by expected changes to Kuwaiti capital market rules, which will force buyers of stakes over 30% to bid for the remaining shares – despite being exempt from this rule.
So, if another buyer were to emerge, it would now have to buy 100% of Zain, an option that, given Etisalat’s US$11.7bn offer for 46% of the company, would seem very expensive. What’s more, other companies such as Vivendi and France Telecom, which have in the past run their rules over the company, have now set their sights in other directions.
Is Zain still in any position to reinvigorate its role as global expansionist? Certainly, its CFO said in February that Plan B would see the company seek growth opportunities in the Far East, the Indian subcontinent, Eastern Europe and Lebanon – as long as shareholders and the board would support such a move.
“I don’t think Etisalat will come back and don’t imagine any other operators coming forward, so I would hope Zain’s advisers would be discussing a break-up”, said one person in the region.
Two people close to the deal agreed, with one saying: “If one partner demands an exit and there is no sale agreement, the solution is to liquidate the company. It may well be that this is the only solution”.
Not everyone familiar with the company believes that the sum of Zain’s parts are worth more than the whole, but most would agree that Etisalat would be interested in Iraq and Sudan, and that Batelco would (eventually) want Saudi Arabia.
The timing of such a break-up is unclear. Nonetheless, one person noted: “The data room is ready, so it’s pretty easy to sell off the company in pieces.”
M&A craze in EMEA
Not to be outshone by AT&T’s blockbuster takeover offer of TMobileUSA, EMEA is also seeing major M&A deals going ahead.
In France, having been vocal about its intention for some time, Vivendi has finally taken full control of mobile operator SFR. But it paid a full price of E7.95bn to Vodafone, which is offloading several minority shareholdings (including its 24.39% in Polish mobile operator Polkomtel) while spending US$5bn to buy out partner Essar in India.
Meanwhile, the shareholders of Russia’s VimpelCom Ltd approved the merger with Wind Telecom and the transaction received all the necessary regulatory approvals. This is good news for lenders as VimpelCom is to raise a bridge loan to finance the acquisition and Orascom Telecom Holding, Wind Telecom’s Egyptian-based subsidiary, will refinance debt as part of the merger.
Network sharing takes off in Europe
In Poland, mobile operators PTC and PTK Centertel, respectively owned by Deutsche Telekom and France Telecom, have received competition approval to set up a partnership that should result in the creation of a 50-50 JV to share mobile network infrastructure and radio frequencies. The French and the German incumbents, which last year merged their networks in the UK, could go on and combine further operations in Austria and Romania.
In Ireland, Eircom and O2 have announced a strategic network partnership, which could lead to them building new sites together.
