Etisalat intends to create a French-speaking telecom cluster of about 42 million subscribers across 10 countries in West Africa on completion of a deal to buy a controlling stake in Maroc Telecom, the Abu Dhabi-based company said in a presentation to analysts.
The telco has entered into exclusive talks with Vivendi SA for its 53% stake in the Moroccan operator.
A West African cluster, managed out of Morocco, makes sense. Etisalat is already present in Benin, Ivory Coast, Gabon, Niger, Central African Republic and Togo, while Maroc Telecom has subsidiaries in Mauritania, Burkina Faso, Mali and also Gabon. So that’s just Gabon where there is overlap. And oui, all the countries speak French.
Etisalat says economies of scale, reduced capital expenditure costs, potential mobile data revenues and new digital services are all strategic reasons to merge the operations in Africa.
Reasons that most analysts agree with. “I think there are savings to be had as Morocco is certainly the hub of Francophone West Africa, said Petr Molik, chief financial officer at MenaCorp Finance in Abu Dhabi.
Moreover, the numbers on this deal also sound right. For a price of 4.2 billion euros, analysts say the telco is not overpaying at 6.2 times 2013 earnings before interest, taxes, depreciation and amortization. “We continue to hold the belief that if Etisalat is successful in acquiring Vivendi’s stake in Maroc Telecom that it would act as a catalyst for the stock,” Shrouk Diab, an analyst at NBK Capital said in a note to clients.
For Etisalat, a lot is at stake to get its growth strategy in Africa right after some previous expansion plans yielded a mixed bag of results. It exited India last year after the court there revoked as many as 122 telecom permits held by several companies citing corruption in their allotment. And in 2011, it abandoned plans to buy a stake in Kuwait’s Zain Group.
But after months of negotiations, most industry observers expect Vivendi to accept the Etisalat offer. The Moroccan government, which has a blocking 30% stake in Maroc Telecom, will then decide whether or not to rubber stamp the transaction. No details are forthcoming yet on whether Etisalat has had to agree sweeteners for Morocco.
Etisalat is also expected to make a mandatory offer to shareholders for the remaining 17% of the company once the deal is done. “However we believe that the price offered to minorities could be less than what was offered to Vivendi, since management stated that it was not bidding for a controlling stake as was the case when it made the offer to Vivendi,” the NBK Capital analyst said.
By Rory Jones
The Wall Street Journal
