A single big deal in African telecoms might look like a bold gamble, (or a very expensive bout of M&A whimsy). But two in a week, worth a combined $13.2bn, made it look like the Chinese and Indians know something about the prospects for African telecoms that some other big telco players don’t. Actually it now seems that some people – including the Nigerians – don’t even know who’s bidding for what.
We’re talking about the planned $10.7bn deal by India’s Bharti Airtel for the African telecom assets of Kuwaiti group Zain, announced on Tuesday, and the $2.5bn bid for a majority stake in Nitel, Nigeria’s former state telecom monopoly, by New Generation, a consortium that was widely reported on Wednesday to have included China’s Unicom as well as Minerva, of Dubai, and GiCell, a small Nigerian telco .
On Thursday, however, the hype over the Nitel deal gave way to bewilderment as China Unicom denied any involvement in the bid.
As the initial news of China Unicom’s involvement came straight from officials of Nigeria’s National Council on Privatisation at press briefing in Abuja this week (and was duly reported by news organisations ranging from the FT to Bloomberg and Reuters and the Wall Street Journal) clearly, someone is lying.
As the FT reports:
A $2.5bn bid for Nitel, Nigeria’s former telecoms monopoly, was thrown into disarray on Thursday when China Unicom, previously named as part of the bidding consortium, denied any involvement.
The bid, which would represent one of the largest privatisations in African history and rank among China’s highest-priced investments on the continent, has caused consternation among Nigerian financiers since it was announced during a bidding round on Tuesday.
On Thursday a spokesman for state-owned China Unicom, China’s second-biggest telecoms carrier and listed in Hong Kong, Shanghai and New York, said the group had not been involved in any way in the bid.
The $2.5bn bid from the consortium, known as New Generation Communications Limited, was some $1.5bn more than the second-highest offer, which came from Omen International, a little-known company registered in the British Virgin Islands, according to Tuesday’s statement from Nigeria’s privatisation body.
The two other parties named as members of the New Generation Communications consortium – Minerva of Dubai and GiCell, a small Nigerian operator – could not be reached for comment.
There was no comment on Thursday morning from Nigeria’s Bureau for Private Enterprises, which handled the bidding round. In fact, the bureau was undoubtedly in damage-control mode, though we’re not quite sure with whom.
Either way, in both cases, the price tags on the all-cash bids – featuring handsome premiums – have raised eyebrows around the world.
For Bharti, shareholders and some analysts were initially underwhelmed by news of the deal, driving down the Indian group’s share price by 13 per cent in the first two days, while some brokers cut their buy rating on the Indian company (see Monday’s Markets Live discussion here).
But others might agree with the description by telecom industry blog IntelligenceCentre of the Bharti deal, at least, as “a watershed moment” in emerging-market telecoms.
Without excavating the ins and outs of the respective bids, the bottom-line message from both India’s Bharti and the New Generation group is that they see vast potential in securing footholds in Africa.
And unlike many big western telcos, a company such as Bharti knows how to run low-cost telco businesses in high-growth developing economies.
Regardless of whether China Unicom is involved or not, the New Generation bid $1.5bn more than the second-highest offer for troubled Nitel, causing some investors to wince at the price tag for a company that clearly has some big problems.
In the case of Sunil Bharti Mittal, founder of India’s Bharti, which has twice failed to merge with South Africa’s MTN, the Zain deal marks the realisation of a long-held ambition, providing, as it does, an alternative route into the continent.
As the FT notes, with 125m subscribers and dominance of the world’s fastest-growing large mobile market, Bharti is on track to become one of the globe’s biggest telecom groups. But the Indian telco is facing fierce competition in its home market, with about 12 operators across India vying for the middle-class mobile phone spend – all in a rapidly maturing market.
In his growing overseas push, Mittal recently bought Warid Telecom in neighbouring Bangladesh for an initial investment of $300m. But he clearly wanted more critical mass – and was willing to pay for it.
Nigeria, the continent’s most populous nation, has recently overtaken South Africa as Africa’s biggest telecoms market. MTN, the South African telecom group, now leads Zain in a market estimated to have about 45 per cent mobile penetration. But Bharti – and whoever is in New Generation – intend to change that.
Another major telco in Asia also clearly likes the idea – Singapore Telecommunications, which owns 30.5 per cent of Bharti and was described by the FT as a “strong supportive shareholder” in the Indian company. But, as Lex noted:
Little wonder Bharti’s shareholders are nervous. Zain’s African businesses are expected to earn $1.3bn this year… Bharti has offered about eight times that. It sounds rich, but Vodafone paid a similar multiple for South Africa’s Vodacom, as did Vivendi last year for a foothold in Brazil. Bharti is betting it can do much more with Zain’s assets than the Kuwaitis did. It knows how to run a low-cost, high-growth business, so that is a start. But a 9 per cent drop in its shares on Monday suggests investors need much more convincing.
Some investors may have come round to Bharti’s way of thinking – at least, enough to stop the company’s share price slide and even to drive it up 2 per cent in Mumbai on Wednesday and a further 2.8 per cent on Thursday.
So perhaps we should leave the last word to the man himself, whose response to the doubters is summed up rather nicely in Bloomberg’s latest headline on the matter: “Bharti’s Mittal Says Zain Price ‘Not Over the Top’”
“I think the biggest lesson for us is that a deal can be one of two things: it can be big and needs to be simple, or it can be a complicated deal, but needs to be small,” Mittal, 52, said in an interview with Bloomberg Television in Barcelona, Spain [on Wednesday]. “MTN was both big and complicated. Thankfully, this one is big, but very straight.”
Related links:
Investors wary of Bharti’s Africa plan – FT
Zain to clear $5bn in asset sale – FT
Bharti Airtel bids for Zain’s African phone customers - NYT