zainsacquisitionbybhartiairtel-131004064320-phpapp01

8/11/2019 zainsacquisitionbybhartiairtel-131004064320-phpapp01

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ZAINSACQUISITION BY BHARTI AIRTEL

Presented By:

Ankit Shivhare.

Mohammad Ashraf.

Shivangi Singh.Prashna Bhattarai.

Aditi Kavedia.

Nupur Kaul.


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ZAINSACQUISITION BY BHARTI AIRTEL

On March 30, 2010, Bharti had entered the deal to acquireZain Telecom's operations in 15 nations,

excluding Sudan and Morocco

On June 8,2010 Bharti Airtel completed the deal for an

Enterprise Value $10.7 billion (about Rs 48,000 crore) This acquisition, besides giving Bharti its much-desired

presence in Africa, made it the world's fifth largest wireless

company with operations across 18 countries and a subscriber

base of around 179 million


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The African business widened Bharti's reach, which was

hitherto restricted to Asia and the Indian Ocean region with

businesses in Sri Lanka, Bangladesh and Seychelles

Bhartisentry into Africa gave the company access to a

population of about 470 million people from the Atlantic coast

to the Indian Ocean, with just over a third of them carrying

mobile phones

The Zain acquisition was contemplated to take the revenue ofthe combined entity to an estimated $13 billion

The combined business was estimated to have 180 million

customers and generate EBIDTA of $4.7 billion on revenue of

$12.4 billion, according to Bharti


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FINANCIALS

Of the $10.7 billion enterprise value of Zain, Bharti paid $8.3

billion upfront and $700 million after a year

It also take over approximately $1.7 billion of Zain's debts as on

December 31, 2009

Of the $8.3 billion paid to Zain, Bharti raised debt from a

consortium of foreign banks and State Bank of India with the lead-arranger and lead-advisor Standard Chartered Bank committing

the highest amount $1.3 billion, followed by Barclays at $900

million.

The rest of the co-advisors ANZ, BNP, Bank of America-Merrill Lynch, Credit Agricole CIB, DBS, HSBC, Bank of Tokyo-

Mitsubishi UFJ and Sumitomo Mitsui Banking Corporation

allocated $600 million each.

State Bank of India agreed to an up to $ 1 billion loan in rupeeterms


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VALUATIONS

The deal enterprise value of USD 10.7 billion implied a

valuation of:

USD 320 per proportionate subscriber

3.6 times revenue 11.6 times EBITDA, a 30-70% premium versus Bharti's

valuation at that time

Zain's peer, MTN traded at 5.5-6 times EV/EBITDA


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ANALYSIS

The deal made sense for Bharti for the following reasons:

Low Financial leverage

Bharti had a very low Net Debt to Equity Ratio of 0.05 at the end ofDec., 2009 which means that it was virtually a debt free company

It is good to have low debt but zero debt is not a desirable situation as

debt can increase the shareholders returnon their investment due totax advantages associated with borrowing

Bharti is a profitable company with over 40% EBIDTA margins which ishigher than the cost of debt. This means that it is better for thecompany to pay interest than paying dividends to a large number ofshareholders and hence it should either reduce the shareholding

(through share buyback) or increase debt and deploy debt in aprofitable way. Bharti selected the second option and took debt to buyZain that would return higher profits in the long term


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Free Cash

Bharti is one of the few carriers across the world that has

free cash flow and it didnt make sense for the company to

keep sitting on the pile of cash when it can deploy it in

productive assets

The capex in the Indian operations had started to decline

and hence the free cash flow was likely to increase even

further in future

The company would not have found much problem in

servicing the debt raised to fund the acquisition due to

generation of free cash flow in the years to come


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ttractiveness of frican Market

The tariffs had declined significantly in India and the

penetration levels had crossed 45% in India, there was littleopportunity left in the domestic market for Bharti

The penetration levels in Africa were around 33% and the

ARPU levels were high varying from $8 12 (apart from Kenya

and Ghana where it is closer to India ARPU levels of $4) Bharti could replicate its low cost model in the African market

which would not only bring the cost down but would also result

in significantly higher subscriber addition

The level of competition in Africa was not as intense as Indiaas most of the countries had no more than 4-5 operators.


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THANK YOU

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