ZAIN’S ACQUISITION BY BHARTI AIRTEL

Presented By:Ankit Shivhare.Mohammad Ashraf.Shivangi Singh.Prashna Bhattarai.Aditi Kavedia.Nupur Kaul.

ABOUT: BHARTI AIRTEL Bharti Airtel Limited is a leading global

telecommunications company with operations in 20 countries across Asia and Africa

Headquartered in New Delhi, India, the company ranks amongst the top 4 mobile service providers globally in terms of subscribers

In India, the company's product offerings include 2G, 3G and 4G wireless services, mobile commerce, fixed line services, high speed DSL broadband, IPTV, DTH, enterprise services including national & international long distance services to carriers

In the rest of the geographies, it offers 2G, 3G wireless services and mobile commerce. Bharti Airtel had over 269 million customers across its operations at the end of March 2013

ZAIN’S ACQUISITION BY BHARTI AIRTEL

On March 30, 2010, Bharti had entered the deal to acquire Zain 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

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

Bhartis’entry 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 of the 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

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 rupee terms

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

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

of Dec., 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’ return on their investment due to tax advantages associated with borrowing

Bharti is a profitable company with over 40% EBIDTA margins which is higher than the cost of debt. This means that it is better for the company to pay interest than paying dividends to a large number of shareholders and hence it should either reduce the shareholding (through share buyback) or increase debt and deploy debt in a profitable way. Bharti selected the second option and took debt to buy Zain that would return higher profits in the long term

Free Cash Bharti is one of the few carriers across the world

that has free cash flow and it didn’t 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

Attractiveness of African Market The tariffs had declined significantly in India and

the penetration levels had crossed 45% in India, there was little opportunity 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 India as most of the countries had no more than 4-5 operators.

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