Vimpelcom and Warid Telecom have agreed to merge their Pakistani mobile units, marking the country’s first ever sector merger. Vimpelcom, which has done three major M&A deals since the summer as part of a “profound transformation”, will consolidate the combined entity.
Vimpelcom (NASDAQ:VIP) and Warid Telecom have agreed to merge their Pakistani mobile units, marking the country’s first ever sector merger.
Amsterdam-based VimpelCom, which has core operations in Russia, owns 51% of Global Telecom Holding (GTH), which in turn owns Mobilink. Last week, GTH agreed to sell its indirect 60% stake in Telecel Zimbabwe. GTH also has subsidiaries in Algeria (Djezzy) and Bangladesh (Banglalink).
Together, Pakistan Mobile Communications (Mobilink) and Warid Telecom, owned by shareholders in the Dhabi Group, which manages the investments of Abu Dhabi sheikh Nahyan Mubarak al Nahyan and affiliates, will serve 45 million customers, the companies said in a statement. It will also have the largest network with almost 5,000 3G and 4G sites.
Mobilink is currently the mobile market leader in terms of customer numbers, while Warid is the fifth of the country’s six MNOs.
The deal, along with future investments, will help the merged entity to accelerate the rollout of high-speed mobile services, create a better network and offer more comprehensive and competitively priced services, the companies said.
The deal value was not disclosed, but the companies said it is expected to create about US$500m of capex and opex synergies. The Pakistani cellcos’ combined revenues for the 12 months to December was US$1.4bn.
In an investor presentation, VimpelCom said the deal would create US$115m in annual run-rate cost synergies, 90% of which are expected within three years of closing.
The acquisition part of the deal will see Mobilink acquire 100% of Warid’s shares in exchange for Dhabi Group taking a 15% stake in Mobilink. Six months after this closes, the parties intend to merge Warid into Mobilink. No cash contributions are expected from VimpelCom/GTH or Dhabi Group shareholders.
VimpelCom will consolidate the mergeco and, together with GTH, nominate six of its seven board members, while the Dhabi Group will nominate one.
Mobilink CEO Jeffrey Hedberg and CFO Andrew Kemp will lead the mergeco’s management team.
The acquisition part of the deal is expected to close within six months, subject to the approvals of Pakistan’s competition commission, telecom authority, state bank and securities and exchange commission. There are no break-up fees.
After a four-year lock-in period following the closing of the acquisition component, VimpelCom/GTH and Dhabi Group shareholders will both have the option to sell their shares in the merged entity to each other at fair market value.
VimpelCom CEO Jean-Yves Charlier (pictured) said the merged entity will “offer a best-in-class mobile and high-speed data network – a key factor in the digital enablement of Pakistan’s economy”.
Vimpelcom’s third deal since summer
Following the company’s August agreement to create a 50/50 JV in Italy with CK Hutchison, Vimpelcom/GTH earlier this month agreed to sell Telecel Zimbabwe to state-owned Zarnet following a protracted battle with the government. It is also looking to sell towers in Russia and other former CIS markets as part of a “profound transformation” announced over the summer. The company said at the time that it would eye consolidation within existing markets with a view to holding a number one or number two position.
Charlier today described the Pakistan deal as “another important step in our journey to continue delivering on our strategy to transform VimpelCom and improve our competitive position in our operating markets”.
Sheikh Nahyan, chairman of the Dhabi Group and Warid Telecom International, which also has operations in Bangladesh, Uganda, Congo Brazzaville and Ivory Coast, said Warid Pakistan’s strong post-paid base and high-quality 4G network will complement Mobilink’s market position.
“We are very pleased to contribute to strengthening the competitive landscape for the broader telecom sector and the overall economy of Pakistan,” he said, adding that the deal reflects his and his fellow investors’ continuing commitment to the country.
VimpelCom said the deal will have a “limited impact” on group leverage (+0.1x) and an “acceptable impact” on GTH’s (+0.3x). Mobilink had net debt of US$380m as of September 2015, while Warid had US$470m.
Asked about Vimpelcom/GTH’s plans for its Bangladesh unit, a company spokesperson told TelecomFinance that it considers it one of its key assets.
“We plan to develop our business in this country in line with our strategy, focusing on the best customer experience and developing data and mobile financial services.”
