Bharti Airtel-Zain Merger

Bharti-Airtel 3rd LARGEST wireless operator in the world with

operations in 19 countries across Asia and Africa. 5th LARGEST INTEGRATED telecom operator in

the World. LARGEST TELECOM company listed on Indian

Stock Exchanges It is structured into four strategic business units -

Mobile, Telemedia, Enterprise and Digital TV. Bharti Airtel is the leader in Indian Wireless

market with 20.2% market share, followed by Reliance Communications 16.7%,Vodafone16.5 %.

Its Mobile Services partners are Nokia Siemens, Ericsson, Huawei.

As per latest figures Bharti Airtel has 207.8 mn Customers and Net Assets are worth $ 32.3 bn.

Airtel Valuation (Rs million)

Zain Zain, formerly MTC, was the first mobile

telecommunications company in the Middle East when it started its operations in Kuwait back in 1983.

Its subsidiaries include; Mobile Telecommunications Company (MTC) SARL, Lebanon, and Sudanese Mobile Telephone (Zain) Company Limited, Sudan.

It is a public company engaged, together with its subsidiaries, in the provision of mobile telecommunication and data services, including operation, purchase, delivery, installation, management and maintenance of mobile facilities and paging systems in Kuwait and 21 other countries in the Middle East and Africa.

Zain Africa is Wholly owned subsidiary of Zain, incorporated in Netherlands and undertook the African operations of Zain.

Vision 2015

" Enriching lives means putting the customer at the heart of everything we do. We will meet their needs based on our deep understanding of their ambitions, wherever they are. By having this focus we will enrich our own lives and those of our other key stakeholders. Only then will we be thought of as exciting, innovation, on their side and a truly world class company."

Why Zain-Africa?

Bharti Airtel came up with an decision to hand over every core function from IT to Networks to IBM in 2004. Idea was to remain and grow as a core telecom company and it did.

In May 09 it became largest telecom in India, but over a period profit margins were continuously falling view 13 competitors fighting fiercely for every chunk in market.

Being a core telecom company it could not diversify its portfolio into other businesses and geographic expansion into new markets was the only alternative to escape slowing profit growth in India.

Next round of telecom revolution is likely to happen in Africa and this emerging market was ideal for Bharti’s business aspirations for days to come.

To reduce its business dependence on fast-saturating Indian Market, this deal was a business necessity for Bharti Airtel.

Bharti Airtel – Zain Deal Bharti Airtel Ltd acquired Zain Group’s (“Zain”) mobile

operations in 15 countries across Africa for an valuation of USD 10.7 billion. With this acquisition Bharti Airtel became the 5th largest mobile operator in the world.

Bharti’s acquisition of Zain’s African mobile services operations covers a total customer base of over 42 million with telecom penetration of approximately 40%.

The countries in which Bharti has acquired the operations are - Burkina Faso, Chad, Congo Brazzaville, Democratic Republic of Congo, Gabon, Ghana, Kenya, Madagascar, Malawi, Niger, Nigeria, Sierra Leone, Tanzania, Uganda, and Zambia.

Zain is the market leader in 10 of the 15 countries and second in 4 countries.

Leveraged buy out: Bharti Airtel has borrowed USD 7.5 billion from a consortium of banks led by Standard Chartered Bank and Barclays Bank. Bharti Airtel availed a rupee loan of USD 1 billion equivalent from SBI Group

WHY LBO?

In a LBO there is usually 70% debt and 30% equity.

LBO will not impact Bharti Airtel’s balance sheet in near terms and its financials will remain intact.

Since Bharti Airtel debt-equity ratio could have grown from 0.4 to1.4 if debt was taken on its books and have seriously limited its ability to raise funds for future expansion into 3G technology.

BCG Model

SWOT Analysis

Strength Post acquisition, Bharti Airtel will become fifth

largest service provider in terms of the number of subscribers.

The deal would give Bharti 42 million subscribers in 15 African countries, which have a combined estimated annual revenue of $3.6 billion

Bharti, largest telecom player in India, can replicate the success of India in Africa

Strategic Alliance with other stake holders, including Nokia, SingTel & Sony Ericson

Weakness

Bharti has paid a heavy price for the deal Zain Africa has made a net loss of USD 112 million

in the nine months to September 2009. Seven of Zain’s African units are loss-making, including its highest revenue earner, the Nigerian arm, Zain Nigeria.

The deal is highly volatile and carries huge commercial risk for Bharti Airtel

The loan would be a drag on Bharti Airtel's earnings with no immediate returns expected from the loss-making target.

Opportunity

Telecom penetration in African countries varies from 37 per cent to 65 per cent. There are few markets with penetration less than 40 percent

The African market is homologous to Indian market in term of its structural similarities.

Monthly ARPU on the Continent averages USD 7.5, which is higher than India’s ARPU of USD 5

Africa is too good an opportunity for Bharti Airtel to experiment the model that it has mastered in India, particularly its rural strategy.

Threat

Zain Africa is in trouble and financial paralysis is looming over its head

Bharti Airtel will have to put in a lot of effort to align the varied cultures; with 15 countries to tackle it definitely will be a nightmare.

Bharti-Zain will be getting a tough fight with rival like MTN and China Mobile.

Greater political and economics risks in Africa . Most of the countries are politically unstable and operations are still loss making.

Reason for the deal

Competition in India. (13 operator in each of 22 circles)

Cut call rates from Rs 16.80 pm to .50 pm. Huge decrease in Avg. Revenue per user.

From 500 Rs to 145 Rs today. In last five years.

Telecom density in India is almost 67.6 % Expected to be about 80% in 2015.

Advantage Aim

A) ZAIN from BHARTI Bharti may bring in tariff schemes for a low ARPU

but high volume market. Zain can also benefit from Bharti’s efficiency in

managing network operations.B) BHARTI from ZAIN Bharti can understand African market better. It can learn a lot from Zain expertise in data

service such as 3G and 3.5G

Airtel after 1 year of Zain deal

Conclusion

Bharti Airtel cross border acquisition of Zain Africa operations has made it one of the top global players in the telecom industry.

The funding of the deal is strategically done through an LBO providing Bharti Airtel the levy to consolidate its operations in rural India and in the 3G space

Cross-border acquisition was also the best strategy for Bharti to counter the hyper competition India. It also provides it the much needed diversification in revenues.