India's largest mobile operator Bharti Airtel Limited has revived its African safari once again. The company has started exclusive talks for buying out Kuwait based Zain's African operations after Zain's board accepted a $10.7 billion offer for the business.
But the big question is whether the deal is worth the money Bharti group CMD Sunil Mittal will have to fork out.
At first look it seems the right move for Mittal as Zain will provide Bharti the much needed presence in Africa.
The average penetration in Zain's African markets is only 36 per cent and this acquisition gives Bharti an additional 42 million subscribers.
But a closer look brings a totally different picture.
The deal may leave out high Average Revenue Per User (ARPU) markets of ZAIN like Morocco and West Asia. Zain's ARPU in this market is only $6, much lower than that of MTN.
Zain is fighting legal disputes in Nigeria which could also make things tricky. Mroeover, company’s African operations carry a debt of $2 billion.
These concerns explain why the stock took a beating on Monday as Bharti shares tumbled 9.2 per cent, their biggest fall in four and a half months, to Rs 285.40.
What seems to be scaring investors more is the possibility of an all cash deal adding a mountain of debt on the company's books which can crowd out the money needed for the very competitive 3G auctions next fiscal.
Morever, this deal is coming at a time when its margins from india are wafer thin thus hitting its overall profitability.
However, Bharti management sees big benefits in the deal.
Even as Bharti and Zain are engaged in exclusive talks till March 25.
Zain's biggest shareholders, the Kharafi family, have made their keenness to sell apparent but Bharti may soon find that going by past experience the path to closing this deal may yet be full of many unforseen twists and turns.
But the big question is whether the deal is worth the money Bharti group CMD Sunil Mittal will have to fork out.
At first look it seems the right move for Mittal as Zain will provide Bharti the much needed presence in Africa.
The average penetration in Zain's African markets is only 36 per cent and this acquisition gives Bharti an additional 42 million subscribers.
But a closer look brings a totally different picture.
The deal may leave out high Average Revenue Per User (ARPU) markets of ZAIN like Morocco and West Asia. Zain's ARPU in this market is only $6, much lower than that of MTN.
Zain is fighting legal disputes in Nigeria which could also make things tricky. Mroeover, company’s African operations carry a debt of $2 billion.
These concerns explain why the stock took a beating on Monday as Bharti shares tumbled 9.2 per cent, their biggest fall in four and a half months, to Rs 285.40.
What seems to be scaring investors more is the possibility of an all cash deal adding a mountain of debt on the company's books which can crowd out the money needed for the very competitive 3G auctions next fiscal.
Morever, this deal is coming at a time when its margins from india are wafer thin thus hitting its overall profitability.
However, Bharti management sees big benefits in the deal.
Even as Bharti and Zain are engaged in exclusive talks till March 25.
Zain's biggest shareholders, the Kharafi family, have made their keenness to sell apparent but Bharti may soon find that going by past experience the path to closing this deal may yet be full of many unforseen twists and turns.
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