French telecom major Orange has signed a deal with Bharti Airtel International (Netherlands) BV for acquiring its operations in two African countries, Burkina Faso and Sierra Leone.
The companies did not reveal the size of the deal but analysts said it could be worth $800-900 million.
The companies had signed an initial agreement in July 2015 for the acquisition of Airtel’s operations in Burkina Faso, Sierra Leone, Chad and Congo-Brazzaville. The agreement over the latter two countries has lapsed.
The outlay for Orange for these transactions will be based on the financials of Airtel’s two subsidiaries for the year ended March 2016, and will represent the equivalent of 7.9 times Airtel’s Ebitda (earnings before interest, tax, depreciation and amortisation) in these two countries at that time. The completion of these transactions was subject to approval by the competent authorities, the company said.
Orange will acquire all the two companies’ share capital. The consolidated yearly revenue of the two is about ^275 million, according to a statement from Bharti Airtel. These acquisitions will be implemented in partnership with Orange’s subsidiaries in Côte d’Ivoire and Senegal, and will add 5.5 million new customers to Orange’s subscriber base.
Over the last two years, Airtel has raised $1.7 billion from the sale of 8,300 telecom towers in Africa. It is divesting 15,000 towers to different companies in 13 countries in the region to reduce its debt.
Airtel, India’s largest telecom player, acquired the assets of Zain Telecom in 17 countries in Africa in 2010 for $10.7 billion in one of the largest acquisitions by an Indian telecom firm. Airtel had raised $9 billion in debt for its African foray.
After striking Wednesday's deal for two countries, Airtel has now operations in 15 countries in Africa. Besides, it has over 80 million subscribers in Africa and after this deal, they will be left with 74.5 million users.In an analyst note, Kotak said the two operations being sold have an FY2016E estimated revenues of US$300 mn and we understand that the Ebitda margins are close to 40 per cent for these two combined (significantly higher than Bharti’s overall Africa margins of about 20 per cent). "This implies an overall transaction value (EV) of $950 mn or thereabouts," the note said.
Airtel has said it has no plans to exit Africa, though analysts say today’s deal could be the precursor. An analyst based in Mumbai said Airtel had received good valuation for the two companies because buyers preferred French-speaking to English-speaking markets or Nigeria.
“We remain fully committed to our Africa operations and will continue to invest in its growth and building a profitable business and accordingly have no plan to exit. These (four) countries represent a relatively small percentage of our Africa business. The proposed transaction along with our recent strategic divestment of towers will help us focus on the remaining countries,” Airtel had said, when the initial agreement with Orange was announced.
Airtel’s Africa business is running in losses since 2010. Airtel’s net debt at the end of 2014-15 stood at over $10.67 billion, while the net loss was $585 million on revenue of $4.2 billion from its African operations.
The company has missed targets of 100 million African subscribers (42 million at the time of acquisition), $5 billion revenue ($3.6 billion at time of acquisition) and $2 billion Ebidta by March 2013.
OUT OF AFRICA
$10.7 bn: Airtel acquires Zain Telecom assets in 17 countries in 2010
$1.7 bn: Sells tower assets to reduce debt
$10.67 bn: Net debt at end of Mar 2015
$585 mn: Net loss on revenue of
$4.2 billion from its African operations
80 mn: Airtel’s Africa subscriber base
BY MARCH 2013, Airtel was missing its targets in Africa of 100 mn subscribers (42 mn at the time of acquisition),
- $5 bn revenues ($3.6 bn at the time of acquisition) and $2 bn of Ebitda