--Bharti will take management and board control in Warid Telecom, Bangladesh
--Warid Telecom covers 64 districts in Bangladesh and has a customer base of 2.9 million
--Dhabi Group will retain 30% stake in the company
--Overall investment in Warid will be $1 billion
--Largest Investment by an Indian firm in Bangladesh
--This is Bharti’s second operation outside India
Barely four months after talks with South Africa’s MTN failed, telecom czar Sunil Bharti Mittal, chairman of telecom services major Bharti Airtel Ltd, is back on the acquisition trail. Bharti has firmly pitched its tent in the neighbourhood by snapping up 70% stake in Abu Dhabi Group's Warid Telecom, the fourth-largest mobile company in Bangladesh.
With this deal, Bharti has consolidated its presence in the neighbourhood region as it already operates mobile services in Sri Lanka on a state-of-art 3.5G network.
Bharti will make a fresh investment of $300 million into the company, which would be largest by an Indian company in Bangladesh. The deal also involves the purchase of existing shares in the company along with the fresh investment, Bharti said in a statement. Bharti’s overall investment in Warid Telcom, Bangladesh will be in the region of $1 billion, it added. Bharti will have the management and board control of the company, with Dhabi continuing to be a strategic investor with a 30% stake. Warid covers 64 districts of Bangladesh and has 2.9 million customers.
VCCircle had estimated the Bharti-Warid deal valuation in its story posted on December 31, 2009. The VCCircle report pegged the valuation of Warid Telecom Bangladesh at $500-550 million and, hence, Bharti’s 70% stake at $300-350 million.
"This landmark deal underlines our intent to further expand our operations to international markets where we can implant our unique business model and offer quality and affordable telecom services," said Sunil Bharti Mittal, Chairman and Managing Director, Bharti Airtel, in a statement.
"The deal will strengthen Bharti's presence in South Asia and adds to the Sri Lankan investment. Bangladesh is an attractive market in terms of volume opportunities since user density is around 33% today and is expected to double over the next 3-4 years," said Vivek Gupta, a partner in BMR Advisors' Mergers and Acquisitions (M&A) practice. Gupta feels that the valuation is justified given the expected growth in Bangladesh's market.
Warid has a 5.8% market share in Bangladesh, which has seen subscriber base move up from 9.3 million in December 2005 to 50.6 million at the end of November 2009. Bharti Airtel has today said that the deal would be partly by purchase of existing shares held in Warid Telecom International by Dhabi Group for a nominal consideration and balance by way of issue of fresh shares at par. The fresh funds will be used for expansion of current network coverage and capacity of Warid and introduce new products. Part of this investment could also be used to bid for third generation (3G) mobile services, which Bangladesh's telecom regulator announced would be done later this year.
The Indian telecom major joins other foreign operators in the Bangladesh market such as Grameenphone, the country’s largest telco, majority owned by Norway's Telenor; Orascom Telecom of Egypt, which runs Banglalink and Telekom Malaysia's Aktel. In 2008, NTT DoCoMo paid $350 million to buy a 30% stake in Aktel, which had a subscriber base of 8.14 million. This gave Aktel a valuation of about $145 per subscriber. Other operators in Bangladesh include Citycell and Teletalk.
Bharti Airtel could look at a string-of- pearls acquisition strategy, cherry-picking assets in various geographies. But this may not be as easy as the telecom sector is closely watched by governments across the globe. "Here also the government was closely involved since Bangladesh needs additional investment in telecom infrastructure and network expansion. This proposal by Bharti fits in well with the overall objective," said Gupta, adding that there might not be any more emerging markets targets available for Bharti to pick up.
This push for expansion by Bharti Airtel comes after its talks with MTN Group to create the world's third-largest mobile operator collapsed for the second time last year. The increased tariff war and competition in the Indian markets has hit profitability and Bharti is looking at other growing markets. Bharti had been in exclusive talks with MTN since May to October 2009, where the period of talks was extended several times. While the deal between both the companies was finalised, issues pertaining to dual listing led to the collapse. Bharti had also engaged with MTN in 2008.