Deal analysis of Bharti Airtel and Zain (Africa)

A PROJECT SUBMITTED IN

PART COMPLETION OF

POST GRADUATE DIPLOMA IN MANAGEMENT

TO

TIMSR

BY

ANKIT KAPADIA

UNDER

PROF. MISHU TRIPATHI

TIMSR

FULL TIME – BATCH – 2014-2016

Shyamnarayan Thakur Marg, Thakur Village,

Kandivali (East), Mumbai 400101

Deal analysis of Bharti Airtel and Zain (Africa)

A PROJECT SUBMITTED IN

PART COMPLETION OF

POST GRADUATE DIPLOMA IN MANAGEMENT

TO

TIMSR

BY

ANKIT KAPADIA

UNDER

PROF. MISHU TRIPATHI

TIMSR

FULL TIME – BATCH – 2014-2016

Shyamnarayan Thakur Marg, Thakur Village,

Kandivali (East), Mumbai 400101

 DECLARATION

I hereby declare that the project report entitled, “Deal analysis of Bharti Airtel and Zain
(Africa)” submitted to Thakur Institute of Management Studies & Research, Mumbai, is a
record of the original work done by me under the guidance of PROF. Mishu Tripathi and this
project work is submitted in partial fulfillment of the requirements for the degree of Masters in
Business Administration.

ANKIT KAPADIA Prof. Mishu Tripathi

Signature of the student Signature of the guide

 Acknowledgement

Before we get into thick of things, I would like to add a few words of appreciation for the
people who have been a part of this project right from its inception. The writing of this
project has been one of the significant academic challenges I have faced and without the
support, patience, and guidance of the people involved, this task would not have been
completed. It is to them I owe my deepest gratitude.

Firstly I thank my institute Thakur Institute of Management Studies and Research and
Director Incharge Dr. Ramakumar Ambatipudi for giving me an opportunity to do my
final project.

My deepest thanks to Prof. Mishu Tripathi, the Faculty Guide of my project for guiding
me throughout the project. I would also take this opportunity to thank her and all the
teaching and non-teaching staff who have been a moral support in all my endeavors.

Ankit Kapadia
Roll No: - 43
PGDM- FINANCE
2014-16 Batch
 CERTIFICATE FROM FACULTY GUIDE

Thakur Institute of Management

Studies and Research
Kandivali (E), Mumbai

Post Graduate Diploma in Management- FINANCE

Batch: 2014-16

This is to certify that this project report titled “Deal analysis of Bharti Airtel and Zain (Africa)”
submitted to Thakur Institute of Management Studies and Research, is a bonafide record of work
done by Ankit Kapadia under my guidance.

----------------------- ______________

Prof. Mishu Tripathi Dr.Ramakumar Ambatipudi

(Faculty Guide) (Director Incharge)

EXECUTIVE SUMMARY

The project aims to understand Bharti Airtel, India’s largest cellular service provider, had
announced that it had entered into a legally binding definitive agreement with Zain Group
(“Zain”) to acquire Zain Africa BV for $10.7 billion – making it the largest ever telecom
takeover by an Indian firm.
To Understand whether the deal was really a profitable deal for Bharti Airtel. To know why and
how Airtel takeover Zain Afirca and also the challenges and legal hurdles faced by Airtel while
entering into the deal. Analyzing the performance over the years in Africa to find how much
profit/ loss Airtel made in Africa post acquisition and to understand present scenario of Bharti
Airtel in Africa.
 Table of Contents

Particulars Page No.

Introduction to Indian telecom Sector 09

SWOT Analysis of Airtel 13

A Dream Destination Africa 15

What’s there in Africa 16

About the DEAL 18

About Bharti Airtel 19

Bharti Airtel Structure 20

About Zain Group 21

Time Line of Key Events 22

Rationale for the Acquisition 24

Structure of Acquisition 27

Legal Hurdles faced by Bharti Airtel 30

Why Acquisition routed through Netherlands 34

Bharti’s African Initiatives 36

Post Merger Analysis 39

Performance Highlight Analysis 40

Post Acquisition Integrationand Challenges 42

Conclusion 43

Learning’s and Outcome 44

Bibliography 45
 Literature Review

 INDIA DIALS AFRICA: BHARTI AIRTEL ACQUIRES ZAIN’S AFRICAN

ASSETS this case was prepared by Anuj Jain, Chiropriya Dasgupta, and Saurabh Arora,
under the supervision of Professors Glen Dowell and Andrew Karolyi. It was written as a
basis for class discussion rather than to illustrate effective or ineffective handling of an
administrative situation Dated June 7,2010; current version is dated March 22, 2015.

 Bharti- Zain Deal Dissection case by Nishith Desai Associates dated May 17,2010 to
find out whether the transaction prove to be expensive for Bharti Airtel. Comparing
Bharti- Zain deal to Failed Bharti- MTN proposed transaction.

7
 RESEARCH METHODOLOGY

A. DATA COLLECTION

For the purpose of evaluation of investigation data is collected from Acquisition of Zain Africa
by Bharti Airtel. The financial and accounting data post acquisition is collected from annual
reports to examine the impact of Acquisition on financial performance of Bharti Airtel.

B. METHODOLOGY

To understand the largest acquisition by an Indian Firm in telecom sector ever. Also to
understand why and how the deal was signed by Bharti Airtel and Zain Africa. To understand the
challenges and Legal Hurdle’s Bharti Airtel faced while entering into African countries. Analyse
the post acquisition effects on Bharti airtel performance in Africa.

8
 INTRODUCTION OF INDIAN TELECOM SECTOR

India is currently the world’s second-largest telecommunications market and has registered
strong growth in the past decade and half. The Indian mobile economy is growing rapidly and
will contribute substantially to India’s gross domestic product (GDP), according to report
prepared by GSM Association (GSMA) in collaboration with the Boston Consulting Group
(BCG).

The liberal and reformist policies of the Government of India have been instrumental along with
strong consumer demand in the rapid growth in the Indian telecom sector. The government has
enabled easy market access to telecom equipment and a fair and proactive regulatory framework
that has ensured availability of telecom services to consumer at affordable prices. The
deregulation of foreign direct investment (FDI) norms has made the sector one of the fastest
growing and a top five employment opportunity generator in the country.

Market Size
Driven by strong adoption of data consumption on handheld devices, the total mobile services
market revenue in India is expected to touch US$ 37 billion in 2017, registering a Compound
Annual Growth Rate (CAGR) of 5.2 per cent between 2014 and 2017, according to research firm
IDC.
India's mobile subscriber base is expected to cross 500 million! subscribers by the end of
FY2015 from 453 million subscribers at the end of FY2014.
According to a study by GSMA, smartphones are expected to account for two out of every three
mobile connections globally by 2020 making India the fourth largest smartphone market.
The broadband services user-base in India is expected to grow to 250 million connections by
2017, according to GSMA.
India added the highest number of net mobile phone subscriptions of 13 million during the third
quarter of 2015@.
International Data Corporation (IDC) predicts India to overtake US as the second-largest
smartphone market globally by 2017 and to maintain high growth rate over the next few years as
people switch to smartphones and gradually upgrade to 4G.

9
In spite of only 5 per cent increase in mobile connections in 2015, overall expenditure on mobile
services in India is expected to increase to US$ 21.4 billion in 2015, led by 15 per cent growth in
data services expenditure, as per research firm Gartner.
The Indian telecom sector is expected to generate four million direct and indirect jobs over the
next five years according to estimates by Randstad India. The employment opportunities are
expected to be created due to combination of government’s efforts to increase penetration in
rural areas and the rapid increase in smartphone sales and rising internet usage.
Investment
With daily increasing subscriber base, there have been a lot of investments and developments in
the sector. The industry has attracted FDI worth US$ 17.7 billion during the period April 2000 to
September 2015, according to the data released by Department of Industrial Policy and
Promotion (DIPP).
Some of the major developments in the recent past are:
 Walmart India Private Limited's president has shown interest in opening its chain of
stores in Haryana, while Micromax has also offered to set up a mobile handset
manufacturing unit in the National Capital Region (NCR).
 Vodacom SA, a subsidiary of Vodafone Plc, has entered into an agreement with Tata
Communications Ltd to buy the fixed-line assets of TataComm's South African telecom
subsidiary Neotel Pty Ltd.
 Bharti Airtel has planned to invest Rs 60,000 crore (US$ 9.02 billion) over a period of
three years with a view to boost its telecom network capacity thereby improving the
quality of voice and data services to its customers.
 Reliance Communications Ltd, India’s fourth largest mobile services provider, has agreed
to acquire Sistema Shyam TeleServices Ltd (SSTL), the local unit of Russian company
Sistema JSFC, in a deal valued at Rs 4,500 crore (US$ 687 million), which includes
payments to the government for spectrum allotted to Sistema.
 Videocon Industries Ltd plans to set up a mobile handset assembly plant along with
manufacturing set top boxes in Punjab for an investment of Rs 500 crore (US$ 76.7
million) over three years.

10
  American Tower Corporation, a New York Stock Exchange-listed mobile infrastructure
firm, has acquired 51 per cent stake in telecom tower company Viom Networks in a deal
worth Rs 7,635 crore (US$ 1.17 billion).
 Chinese smartphone maker OnePlus has announced its partnership with Foxconn, a
Taiwanese company, for assembling its phones in Foxconn's factory in Andhra Pradesh.
 Swedish telecom equipment maker Ericsson has announced the introduction of a new
radio system in the Indian market, which will provide the necessary infrastructure
required by mobile companies in order to provide fifth-generation (5G) services in future.
 Out of the total number of smartphones shipped in India during the June 2015 quarter,
24.8 per cent were made locally - a significant rise as compared to 19.9 per cent in the
previous quarter - as per CyberMedia Research firm.
 Global telecom equipment makers like Ericsson, Nokia Networks and Huawei are
looking forward to over US$ 1 billion revenue opportunity as mobile phone operators in
India roll out high-speed broadband services on the 4G LTE technology across the
country.
 Lenovo Group of China has commenced manufacturing its smartphones in India, through
its contract manufacturer Flex’s facility near Chennai, thus becoming the largest Chinese
company to follow ‘Make in India’ strategy.
 Foxconn, the world’s largest contract-manufacturing firm for consumer electronics and
manufacturer for Apple products, has signed a Memorandum of Understanding (MoU)
with Maharashtra state government to invest US$ 5 billion over the next three years for
setting up a manufacturing unit between Mumbai and Pune.
Government Initiatives
The government has fast-tracked reforms in the telecom sector and continues to be proactive in
providing room for growth for telecom companies. Some of the other major initiatives taken by
the government are as follows:
 The Telecom Regulatory Authority of India (TRAI) has directed the telecom companies
or mobile operators to compensate the consumers in the event of dropped calls with a
view to reduce the increasing number of dropped calls.
 With a view to encourage consolidation in the telecom sector, the Government of India
has approved the rules for spectrum trading that will allow telecom companies to buy and

11
 sell rights to unused spectrum among themselves. The Union Cabinet chaired by the
Prime Minister, Mr Narendra Modi, gave its approval to the guidelines on spectrum
sharing, aimed to improve spectral efficiency and quality of service, based on the
recommendations of the Telecom Regulatory Authority of India (TRAI).
 The Central Government’s several initiatives to promote manufacturing in the country,
such as ‘Make in India’ campaign appears to have had a positive impact on mobile
handsets manufacturing in the country. Companies like Samsung, Micromax and Spice
had been assembling handsets in the country already. Xiaomi and Motorola, along with
Lenovo have also started assembly of smartphones in India. Firms like HTC, Asus and
Gionee too have shown interest in setting up a manufacturing base in the country.
 The Government of India plans to roll out free high-speed wi-fi in 2,500 cities and towns
across the country over the next three years. The program entails an investment of up to
Rs 7,000 crore (US$ 1.06 billion) and will be implemented by state-owned Bharat
Sanchar Nigam Ltd (BSNL).
Road Ahead
India will emerge as a leading player in the virtual world by having 700 million internet users of
the 4.7 billion global users by 2025, as per a Microsoft report. With the government’s favourable
regulation policies and 4G services hitting the market, the Indian telecommunication sector is
expected to witness fast growth in the next few years.

12
 SWOT Analysis of Airtel
Strengths

 Renowned Telecom company: With its years of rich experience in telecom industry this
MNC had travelled far to become world’s 3rd largest telecom operator overseas with
operations in nearly 20 countries.
 High Brand Equity: It is one of the pioneer brands in telecommunication having a high
brand recall and with a whopping subscriber base.
 Extensive infrastructure: With the formation of Indus tower & due to its partnership
with Idea & Vodafone, the infrastructure of Airtel has extended in all parts of the country
resulting into nationwide penetration.
 Strategic Alliances: The company has top notch stakeholders, namely Sony Ericsson,
Nokia and singtel, and the recent one being Apple. Such strategic alliances boost the
brand equity and the bottom line of the company.
 Torchbearer of the telecom Industry: With its number 1 spot due to its excellent
services in developing economies, Airtel has interconnected the life of people in an
highly efficient way. Thus, where Vodafone is an external entrant, Airtel is a leading
nationwide player in India and the torchbearer of the telecom industry in India.

Weaknesses
 Outsourced Operations: Outsourcing operations helped Airtel in lowering its cost. But
on the other hand, they are running the risk of being dependent on some other companies
which may affect its operations.
 Venturing into African operations: Although it’s been 4 years that Airtel has acquired
Zain’s Africa business, but Airtel is still struggling to turn around the unit which was
bought at a whoppy 9 billion dollars.
 High Debt: With its acquisitions turning out to bad investment, and credit being high and
margins being low, Airtel group is under high debt. Airtel does not have as deep pockets
as Vodafone.

13
Opportunities
 Strategic Partnership: Partnering with smart phone companies is going to be a smart
strategy as far as MNP (mobile number portability in India) is concerned. This will
ensure fixed cash flows in the future and a higher customer base.
 Market Development: With fierce competition in the telecom industry & shrinking
margins, venturing out in new markets/developing economies will prove fruitful for the
company.
 VAS: VAS (Value Added services) is going to future of the telecommunication industry
& by specializing itself in this vertical Airtel can differentiate itself in highly competitive
market. With introduction of unique services, Airtel can avail higher margins.
 Untapped geography of the current market: Although it is currently providing 3G &
4G services, but these services are limited to specific geographical locations. Expansion
of these services to most of its regions will help the company get more margins and
customers.

Threats
 Government Regulatory Framework: With the auction of spectrum & change in the
government policies on a regular basis, it is a potential threat to the stability & existence
of this industry thereby affecting the players.
 Competition: Price war in the home market and declining margins due to this is
adversely affecting the overall business of the group.
 MNP (Mobile number portability): MNP gives the customer independence to change
the service provider while retaining the number and as Airtel charges are premium over
other service providers, it can see slump in subscriber base.

14
 A DREAM DESTINATION AFRICA
The highly ambitious, Indian entrepreneur, Mr. Sunil Bharti Mittal had always eyed Africa as the
destination for the next round of technology and telecom revolution and had expressed his intent
to be a part of African business history. Bharti Airtel was determined to find its way into Africa,
but the fundamental question was who to partner with? The African Safari started with two
rounds of extremely intense negotiations with MTN Group Limited (“MTN”) which could not
bring any success for Bharti Airtel. However, the failure to entice MTN did not dampen the
spirits of Bharti Airtel or dilute its prudent dream. The intentions were in line with the dream;
choosing another African partner was only a matter of time as In yet another attempt to gain
entry in African market (after MTN), Bharti Airtel has announced that it has entered into
exclusive discussions till 25th March 2010, with Zain group for acquisition of Zain Africa BV
for an EV of US$10.7bn.

=
15
 What’s there in Africa?

One of the best penetrating opportunities for the global telecom players is the telecom market in
Africa. In Asia, Europe, North America, the telecom sector is approaching a saturation point.
The growth in these areas will be comparatively slower. The companies always look for the
maximization of profit, whether it may be through cutting down of cost or increasing the sales. If
the market reaches a saturation point then there is no opportunity to increase the sale. And if the
company cannot decrease the cost then it will try either to diversify or to expand its grip in the
global market. If the areas like North America, Asia and Europe are already in a saturation point
then the next growing market for the global player will be Africa continent. Some of the major
players in the telecom sectors of Africa are MTN, Zain, Vodacom, STC etc.

Since the processes of liberalization and privatization have been taken into consideration by
African countries such as Uganda, Tanzania, Nigeria, The Sudan, South Africa and Kenya, their
telecommunication infrastructures have improved drastically. Many African governments have
developed their telecommunication infrastructure by privatizing their former state‐owned
enterprises. So these open‐up the stage for global players to perform in it. Africa has become the
fastest growing mobile‐network market during last five years. The mobile user base has
increased to more than 82 million in Africa. A survey by Ernst & Young shows that between
2002 and 2007, the industry grew by 49.3 percent as opposed to Asia which recorded a 27.4
percent growth. This report’s estimate growth of the industry almost doubles that of Brazil which
stood at 28 percent in the same period and is almost seven times the growth of France which
grew at 7.5 percent over the same time. Even there was a report by The World Bank in which it
mentioned that Afro‐nations like Kenya have 95% of mobile network penetration and coverage
gap of only 5%. Thus making it an attractive market to lure some of the major player from the
world. Let’s think a bit over this scenario. Why the Afro mobile market is developing so late and
faster than any area that used to be at the same period of time. In 2004, only 6% of the African
citizen owned mobile. The supply side was much higher than the demand side. And the prices
dropped, but made the African mobile network market a huge potential market for the global
players. They produced low cost and user‐friendly phones and network plans to attract more and
more customer so that the company can increase its customer base.

16
But there some other criteria or which we also call as external environment of a company which
affects a company to operate in that area. The Law of Land also affects the company to design its
operation in a country. They may be the tax‐policy, the FDI policy of the government, the policy
regarding and regulating the telecom sectors etc. Because of these regulations, there are many
Afro‐ nations like South Africa which hold a huge potential market. In South Africa, there are
only three players in telecom network market.

The heavy tax burden on both the operator and consumer is the major challenge for the industry,
with an average taxation on the operator’s profits standing at 30%. For example, in Kenya,
people pay tax of 26% on mobile communication and the operator pay the remaining 4%. The
total tax paid is 30%. But still the government of these nations opines that the industry is highly
profitable, despite of the fact that return on investment could be delayed due to poor
infrastructure. The Afro‐nation doesn’t have the apt infrastructure or the geographical hindrances
as well as the population is scattered. The main problem lies with the electric infrastructure. The
company has to keep more than 2000 standby generators because of frequent power failure. One
of the companies operating in Kenya, Safaricom spends over 171 million on diesels due to lack
of power supply. This makes the cost of investment much high in comparison to the other area.
The operating cost of the company is high in this area because of frequent power cut and even
the tax rate is also high, thus bringing down the profit of the company. But it may be the future
scenario of these countries which lures the global players. The company may sustain the loss in
the short‐run but it may earn profit in the long‐run. Because the economy of Afro‐nations are
growing at a remarkable rate and the infrastructure are also gradually increasing. So it may in the
long‐run be aptly developed so as to favor the network industry. Moreover this is the entry level
of the network sector in Africa as it is developing but once it get saturated the threat to entrants
decreases because if they enter in to the segment, they will not find any extras to lure the
customers.

17
 About the Deal

Brief Snapshot

Acquirer Bharti Airtel Limited

Seller Mobile Telecommunications Company KCS

Target Zain Africa International BV

Bharti Airtel Limited Indirectly Acquired 100% Of Zain Africa

International
Acquisition BV And Its Business Operations In Africa From Zain Under A Privately
Negotiated Agreement.

Mode Of
Security (Share) Sale
Acquisition

Date Of Closure 8th June 2010

Consideration USD 10.7 Billion

All Cash Deal

1. USD 7.9 Billion
Mode Of 2. USD 400 Million Upon Achievements Of Certain Milestones
Payment 3. USD 700 Million After One Year From The Date Of Closing The
Deal
4. USD 1.7 Billion Assumed As Debt On The Books Of Zain As On
31.12.2010

Leveraged Buy‐Out
a) Bharti Airtel To Borrow USD 7.5 Billion From A Consortium Of
Banks Led By Standard Chartered Bank And Barclays Bank.
Funding
b) Bharti Airtel To Avail Of A Rupee Loan Of USD 1 Billion
Equivalent from SBI Group.

18
 About Bharti Airtel
Bharti Airtel had over 307 million customers across its operations at the end of November
2014. 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. The Bharti group is
now the world’s third‐largest, single‐country mobile operator and sixth‐largest integrated
telecom operator. The groups cater the mobile service in India under the brand name of
Airtel and are headed by Sunil Bharti Mittal, He is termed as the Indian Telecom Mogul
because of his largest telecom service provider in India. He is the chairman and the
managing director of the Bharti Groups. The company has a turnover of US$ 12 billion. The
businesses at Bharti Airtel have always been structured into three individual strategic
business units (SBU's) ‐ Mobile Services, Airtel Tele‐media Services & Enterprise Services.
The Company has a market share of around 24.6% of the whole chunk of the mobile
subscriber in India followed by Reliance Communication with 17.7% and Vodafone by
17.4%. Airtel has always looked at the overseas market also. The Bharti Groups always tried
to take the brand of Airtel outside of India. To an extent it has been successful also in doing
this as it has nearly started its operation in Sri Lanka and Bangladesh also under the brand
name of Airtel.

19
Bharti Airtel Structure

20
 About Zain Group
Zain is a Kuwait based company started under the name of Mobile Telecommunication
Company (MTC) in 1983 and was later rebranded to ZAIN in 2007. Zain has present
operation in 25 countries covering 17 countries in Africa and 8 countries in Middle‐East,
with an estimated workforce of 15000. As on February 2010, about 60% of the Zain
customers are in Africa contributing only 15% to the net profit of Zain. Zain has a total of
65 million customers. Out of which 39 million customers are from Africa. The eight
countries in Middle‐East where Zain has it Operation are Bahrain, Iraq, Jordan, Kuwait,
Saudi Arab, Lebanon, Palestine and Sudan; it has its operation in Lebanon under the brand
name of MTC TOUCH. The seventeen countries which comprises of the members of the
Zain’s Operative family in Africa are Burkina Faso, Chad, Democratic Republic of Congo,
Republic of Congo, Gabon, Ghana, Kenya, Madagascar, Malawi, Niger, Nigeria, Sierra
Leona, Tanzania, Uganda, Zambia and Morocco. Mr. Nabeel Bin Salamah is the CEO of
the Zain Groups and Mr. Barak Al‐Sabeeh is the chairman of the board of Director of the
company.

21
 Time Line of Key Events

Date Events

Bharti Airtel announces that it has entered into exploratory discussions with the MTN Group
5‐May‐08

Bharti Airtel withdraws from the talks, following the MTN board presenting a structure
completely unacceptable to Bharti Airtel. Bharti Airtel sees this new proposal as a
24‐May‐08
convoluted way of getting indirect control of the proposed combined entity, which
would have made Bharti Airtel a subsidiary of MTN.

26‐May‐08 Reliance Communications (“RCom”) enters into exclusive merger discussions with MTN.

Financial Express reports that Bharti Airtel is in talks with Zain for acquisition of its
2‐Jul‐08
African assets. News denied by Bharti Airtel's spokesperson.

19‐Jul‐08 RCom and MTN formally end talks.

Bharti Airtel makes a media statement announcing that it has entered into talks with
25‐May‐09
MTN for a strategic merger with exclusivity period till July 31, 2009.

The proposed transaction between Bharti Airtel and MTN called off for the second time
30‐Sep‐09
in two years on the expiry of the exclusivity period.

15‐Feb‐10 Bharti Airtel and Zain agree to enter into exclusive discussions till March 25, 2010 for

22
 the acquisition of Zain Africa for an enterprise value of USD 10.7 billion.

Media Statement from Bharti Airtel, regarding the proposed commercials of the deal.
The total agreed enterprise value of USD 10.7 billion proposed to be met as payout of
around USD 9 billion and for the remaining USD 1.7 billion, Bharti Airtel will assume
16‐Feb‐10 debt on the books of Zain.
USD 700 million out of the payable of USD 9 billion will be paid by Bharti Airtel after one
year from closing. Also, parties agreed to a break‐fee of USD 150 million payable by
either party.

Bharti Airtel announces that the entire financing requirement of USD 8.3 billion for the
proposed acquisition of Zain Africa has been successfully tied‐up. The financing was
oversubscribed, with major international banks committing to underwrite the total
amount.
21‐Mar‐10
Dollar loan: USD 7.5 billion by a consortium of banks led by Standard Chartered Bank
and Barclays Bank.
Rupee Loan: Upto USD 1 billion equivalent INR by SBI Group.

Bharti Airtel announces that the due diligence for acquisition of Zain Africa was
25‐Mar‐10 completed and the definitive agreements were to be finalized soon. Upon signing the
definitive agreements, the parties would move towards obtaining required approvals.

30‐Mar‐10 Parties sign the definitive agreements in Netherlands.

23
 Rationale for the Acquisition

Bharti Airtel, clearly motivated by its African dreams, paid a glaring “opportunity cost” to take
over Zain Africa. Experts comment that the deal is overpriced and Zain Africa is not a worthy
investment. Did Bharti Airtel make a mistake by choosing Zain Africa? Did Bharti Airtel act in
haste and made a wrong decision? Will Bharti Airtel be able to repeat its Indian success in
Africa? Questions are aplenty but there a rationale behind this strategic move of acquisition.

Geographical Diversification
Indian telecom market has become highly competitive with 13 service providers battling out for
a chunk of the revenue. Bharti Airtel Ltd (BAL) will experience a number of speed breakers
along its growth path in India. The Indian telecom sector seems to have reached its saturation
point with scope of expansion left only in the inner part of rural India. BAL is a core telecom
company and will engage in product diversification leaving geographic expansion as the only
strategic alternative to counter slowing profit growth in India.
The next round of telecom revolution is expected to happen in Africa and this emerging market
will be ideal for Bharti Airtel's business aspirations in the days to come. Also, it was
indispensable for Bharti Airtel to reduce its dependence on the fast‐saturating Indian wireless
market. This realization is what compelled Bharti Airtel to establish its presence in Africa.
Hence, this investment, despite being on the costlier side was a business necessity for Bharti
Airtel.

The Lure of Africa

Africa is where the next destination which will experience a revolution in the telecom Sector.
Factors which make Africa the hottest destination are

24
Favorable Demographic

• Population in the African countries is currently around 1 billion and is expected grow
further. The middle class population is currently estimated at 400mn and is expected to
reach 500mn. The African population is expected to double to 2 billion people outpacing
India and China which are expected to grow to 1.6 billion and 1.4 billion respectively.
• The median age is 17‐18 compared to the Indian median age of around 25‐26. It is
forecasted that 25% of the world youth will reside in Africa.
• The African economies are also growing at a faster pace with FIIs increasing by 7x in the
last 5‐6 years. This indicates the higher growth prospects available in the African market.

Spending Power

• Consumer spending potential is estimated to be around $1.4 trillion. The GDP is growing
at rate of more than 5% in 27 of the top 30 economies in Africa. Social ad Democratic
reforms are further cementing the growth potential of the continent

Huge potential

• Also the industry tele‐density is only 20% with some countries as low 10‐12%, BAL
managements expects to grow this to around 60%.
• MOU at 50 – 60 min v/s Global average of 300 min and Indian Average of 450 min but
ARPU (Average revenue per unit) is higher than India (7 US cents vs 1 US cents). MOU
elasticity has played out in BAL current existing markets like India and Seychelles.
• Low competition, only 4 or less telecom operators in 12 countries (out of the 15 countries
in ZAF operation).

Strong market position of ZAF, it is the biggest operator in 10 countries, the second largest in the
remaining 4 out of the 5 operators. An opportunity to increase it’s presence in Africa by
venturing into other markets using ZAF’s existing infrastructure.

25
Headroom to implement its successful low cost high usage model

African markets BAL the opportunity to leverage its management which has the expertise to
operate effectively in Indian markets characterised by low income, low tariffs (but high margins)
and a large rural population – these characteristic are shared by the African markets. Africa is too
good an opportunity for Bharti Airtel to experiment the model that it has mastered in India,
particularly its rural strategy. With a population of a billion spread out in 56 countries, Africa’s
cell phone penetration is comparable to that of India 10 years back. The demand for mobile
services is growing at a rate of 25% across these countries.

26
 Structure of Acquisition

The fifteen jurisdictions are: 1) Burkina Faso, 2) Chad, 3) Republic of the Congo, 4)
Democratic Republic of the Congo, 5) Gabon, 6) Ghana, 7) Kenya, 8) Malawi, 9)
Madagascar, 10) Niger, 11) Nigeria, 12) Sierra Leone, 13) Tanzania, 14) Uganda and
15) Zambia.

Financing is strategically managed

Bharti Airtel has structured this acquisition as a leveraged buyout and the loan for financing the
transaction has been available d by the two SPVs created in Netherlands and Singapore for the
purposes of this acquisition. The SPVs will take the borrowings, aggregating to USD 8.3 billion,
on its balance sheet. Bharti Airtel Netherlands BV will avail loan to the tune of USD 5.5 billion
and the Singapore SPV will borrow the rest of the amount. Once Bharti Airtel is able to
transplant its Indian model to Africa, the negative earnings per share of the African assets on
Bharti Airtel's financials would diminish. Bharti Airtel's decision to opt for the SPV route makes
a lot of sense since it will not impact the parent's balance sheet in the near term. At the end of the
quarter to December 2009, Bharti Airtel's debt‐equity ratio was 0.4 and this would have shot up

27
to 1.2, had Bharti Airtel taken the loan on its books. That would have limited Bharti Airtel's
ability to raise funds in the future for expansion into new third generation technologies through
participation in the 3G spectrum allocation. Hence, Bharti Airtel has structured the acquisition
strategically and routed it through the SPVs keeping Bharti Airtel's standalone financials intact.
However, that does not absolve Bharti Airtel from overall responsibility of a borrower since it
has provided a guarantee to bankers for the loan that will be in the SPV’s books.

Sources of Funds:
Banks Amount
State Bank of India $1.5 billion ($500 million is dollar
loan and the balance in rupee)
Standard Chartered Bank (lead arranger for dollar loan) $ 1.3 billion
Barclays ( joint lead advisor) $900 million
ANZ, BNP, Bank of America Merrill Lynch, Credit Agricole $600 million each
CIB, DBS, HSBC, Bank of Tokyo Mitsubishi and Sumitomo
Mitsui Banking Corporation

Bharti paid around 80 basis points, or 0.8%, for the dollar funding of $7.5 billion, generating $60
million for banks. The dollar loan has been finely priced at 174‐176 bps above Libor, with the
total cost for the company, including fees to banks, coming at a spread of 195 basis points. The
10 year average of LIBOR is 3.75%, thus the cost of debt is Libor+195 bps which will result in
an annual interest cost of USD 200 million.

That means they have to improve EBIDTA by $500m just to pay for the deal; currently EBIDTA
is $1.3bn, so it’s got to scale by 40% for Bharti to get a chunk. They can definitely improve some
bits – tower costs in Africa have been 4x more than India, which can be lowered and internal
efficiencies can be improved. The local mafia in Africa will be tougher to handle (they take the
lucrative deals and back‐peddle commissions) where in India Mittal’s political connections
would have helped in the early stages.

28
Advisory fees earned by Standard Chartered Bank and Barclays, the main bankers for Bharti, are
in the range of $15‐30 million. These two banks could also earn some fees from ForEx and other
derivative transactions. UBS — Zain’s banker — may earn more, as fees in some of the offshore
markets are much better.

29
 Legal Hurdle faced by Bharti Airtel during the Deal

ODI Regulations:

Any Indian company that wishes to acquire or invest in a foreign company outside India must
comply with the Foreign Exchange Management (Transfer or Issue of any Foreign Security)
Regulations, 2004 (“ODI Regulations”).

Under the ODI Regulations, an Indian company is permitted to invest in a joint venture or a
wholly owned subsidiary upto 400% of the net worth of the Indian company, in the form of
equity, loan or guarantee, as on the date of the last audited balance sheet without seeking the
prior approval of the Reserve Bank of India (“RBI”) inter alia if the Indian company:

 Is not on the RBI's caution list or under investigation by the Enforcement Directorate;

 Routes all the transactions relating to the investment in the joint venture or the wholly
owned subsidiary through only one branch of an authorized dealer; and

 Files the prescribed forms with the RBI.

Regulation 13 of the ODI Regulations permits a wholly owned subsidiary set up by an Indian
company to set up a step down subsidiary. Extant ODI Regulations are ambiguous on whether
setting up further down line subsidiaries will require prior approval of the RBI. In the instant
case In the current structure, Bharti Airtel has two SPVs, one in Netherlands and the other in
Singapore to execute the deal. The SPVs will in turn be used to acquire Zain Africa International
BV located in Netherlands to acquire the African assets of Zain. Considering that Zain Africa
International BV would be a further down line subsidiary of the Netherlands SPV, there is an
ambiguity in the ODI Regulations as regards whether this would require prior approval of the
RBI.

There is a debate on whether an Indian company can set up vertical wholly owned subsidiaries
beyond two step‐down subsidiaries since Regulation 13 can be interpreted to cover multiple
layers of step down subsidiaries. While the RBI‟s approach on such ambiguity is unclear, we
understand based on the earlier precedents that RBI has recently been liberal and has permitted
Indian entities from setting up multiple layers of step down wholly owned subsidiaries vertically.

30
Guarantees Regulations:

Considering that Bharti Airtel would extend a corporate guarantee to the bankers for the loan that
has been taken by the Netherlands and Singapore SPVs for financing the transaction, Regulation
5 (b) of Foreign Exchange Management (Guarantees) Regulations, 2000 (“Guarantees
Regulations”) would be attracted. According to Regulation 5 (b) of the Guarantees Regulations,
a company in India promoting or setting up outside India, a joint venture company or a
wholly‐owned subsidiary, may give a guarantee to or on behalf of the latter in connection with
its business; provided that, the terms and conditions stipulated in the ODI Regulations for
promoting or setting up such company or subsidiary are complied with. Accordingly, in the
instant case, Bharti Airtel would have been required to adhere to the ODI Regulations while
providing the corporate guarantee on behalf of its SPVs and hence the guarantee provided by
Bharti‐Airtel in favour of its SPVs together with any equity or any debt investment made in the
SPVs shall not exceed 400% of net‐worth of Bharti‐ Airtel.

Anti Trust Laws:

Competition Act, 2002 (“Competition Act”) was enacted to replace the erstwhile Monopolies &
Restrictive Trade Practices Act, 1969 and provide institutional support to healthy and fair
competition. The Competition Act seeks to:

• Prohibit anti‐competitive agreements including cartels;

• Prohibit abuse of dominant position; and

• Regulate combinations (mergers and amalgamations, and acquisitions).

The provisions relating to (i) anti‐competitive agreements; and (ii) abuse of dominance were
made effective from May 20, 2009. However, the provisions relating to regulation of the
combinations are yet to be notified. If substantive provisions relating to Combinations are
notified, would it have a bearing on the current acquisition?

In terms of the Competition Act, parties to the proposed combination must determine whether
the proposed transaction triggers the applicable threshold limits viz. with respect to the size of
the assets of the parties or the turnover as prescribed under Section 5 (c) of the Competition Act.

31
Since the provisions for regulating combinations (mergers and amalgamations, and acquisitions)
have not yet been notified, there is currently no requirement for any mandatory notification to
Competition Commission of India (“CCI”) about the Bharti‐Zain transaction. However, if such
regulations were notified, given the magnitude of the assets and/or turnover of the parties
involved, it may have triggered the threshold limits, thereby, mandating Bharti Airtel and Zain
Africa to notify to the Competition Commission of India (“CCI”) providing the details of the
proposed acquisition. Once such notification has been made to CCI, CCI shall do its due
investigation on the basis of the criterion laid down under the Competition Act (inter alia level of
combination of the market, market shares) to determine whether the acquisition causes or is
likely to cause an adverse appreciable effect on competition within the relevant market in India
and the CCI shall give its ruling within a maximum period of 210 days. Further, the Competition
Act provides for extra territorial jurisdiction of the CCI to probe into an overseas acquisition if it
causes or is likely to cause an adverse effect on competition in relevant market in India.

The Nigerian Hurdle:

The dispute in respect of ownership of Zain's Nigerian unit (“Zain Nigeria”) may create
concerns for Bharti Airtel. As a matter of brief background, Econet Wireless International
(“Econet”), a major telecom player in Nigeria, claimed that its pre‐emption rights in the form of
“right of first refusal" in respect of shares had been breached when Econet's predominantly
Nigerian partners decided to sell their shares in Vee Networks (or V‐Mobile) to Zain in 2006.
Consequently, Econet tried to prevent the sale of the shares to Zain through the UK courts, but
the judge ruled that the UK was not the appropriate place for such legal proceedings as the
matter was more closely connected with Nigeria.

Since then, Econet has commenced ongoing legal proceedings in the Nigerian courts. The
dispute is, at present, before a court appointed tribunal and would be resolved through arbitration
under the rules of the United Nations Commission on International Trade Law (UNCITRAL).
Econet has also applied for interim measures to prevent Zain from selling, transferring, disposing
of, dealing with or otherwise encumbering the disputed stake until the matter is resolved.

32
It is pertinent to note that in 2008, Zain generated about a fifth of its EBITDA in Nigeria and
about 22% its total sales. Considering that till the time the ownership issue over Zain Nigeria is
resolved, Zain faces a hurdle in transferring its Nigerian assets to Bharti Airtel.

33
 Why was the acquisition routed through Netherlands?

Netherlands, with its efficient tax regime coupled with an investor friendly business
environment, has emerged as a preferred offshore jurisdiction in the world for setting up of
holding companies. Netherlands also provides various incentives under its tax regime including
tax exemption on dividend payments and capital gains through the participation exemption
regime.

Netherlands being a part of the European Union (“EU”) may also act as a passport for future
investments in other European (and non‐European) jurisdictions and has access to the EU
directives with respect to free movement of people, goods, services, and capital. Netherlands has
also entered into double tax avoidance treaties with many of the African nations wherein Zain
has subsidiaries and assets and to that extent it would provide for an efficient repatriation of
profits from the businesses setup in such jurisdictions.

Netherlands also boasts one of the widest networks of bilateral investment treaties and has
entered into close to 100 such treaties with various jurisdictions. Since most African nations are
evolving economies and to that extent may face certain political uncertainties, bilateral
investment treaties provide much required safety to a foreign investor with respect to its
investments. It would be interesting to note that more than half the jurisdictions in which Zain
Africa has subsidiaries have entered into a bilateral investment treaty with Netherlands.

Repatriation of profits from Zain Africa

The structure adopted by Bharti Airtel for acquisition of Zain Africa is conducive from a tax
perspective specifically with respect to repatriation of profits from Zain Africa to Bharti Airtel.

Under the domestic tax laws of Netherlands, no taxes are levied on dividends distributed
between two Netherlands resident companies, subject to compliance with the applicable
participation exemption conditions. Thus, it should provide for a tax free transfer of profits from
Zain Africa to Bharti Airtel Netherlands BV. Further under the Netherlands‐Singapore tax treaty,
dividends paid by Bharti Airtel Netherlands BV to Singapore SPV would not be subject to any
taxes in Netherlands since the Singapore SPV holds at least 25% of the share capital of the
company declaring the dividends.

34
Under the domestic tax laws of Singapore, foreign sourced dividends are exempt from Singapore
corporate taxes, provided the foreign sourced dividends have been subjected to tax in the foreign
jurisdiction and the headline tax rate of the foreign jurisdiction is at least 15%. The headline tax
rate in Netherlands is at the rate of 25.5% and further the condition of the income being
subjected to tax would also be met since the income would be considered taxable (albeit
exempt); thus the dividends received by Singapore SPV would be exempted from corporate taxes
in Singapore.

It should be noted that Singapore does not levy any withholding taxes on distribution of
dividends; therefore dividends distributed by Singapore SPV to Bharti Airtel would only be
taxable in India (when distributed) at the rate of 33.22% as per the provisions of the Income Tax
Act, 1961.

It is interesting to note that majority of the leverage has been taken at the Singapore SPV and
Bharti Airtel Netherlands BV level; however, since they may not have operating profits it may
not be possible to claim the deductions for interest expenses. Further, India does not provide for
group consolidation. Therefore, it would not be possible for Bharti Airtel to offset the interest
expenses of Singapore SPV and Bharti Airtel Netherlands BV against its profits.

35
 Bharti’s African initiatives

In a move that will accelerate the transformation of African mobile communications and
positively impact the speed of economic development across the African continent, Bharti Airtel
Limited and IBM announced the selection of IBM to manage the computing technology and
services that power Bharti Airtel’s mobile communications network spanning 16 African
countries.

Under a completed agreement, IBM will deploy and manage state‐of‐the‐art information
technology (IT) infrastructure and applications to support Bharti Airtel’s goal of taking
affordable and innovative mobile services to remote locations in Africa. In addition, IBM will
deploy advanced technologies created by IBM Research, including the Spoken Web ‐‐ a
voice‐enabled Internet that allows users to access and share information simply by talking over
the existing telephone network, which is particularly compelling for populations with little or no
literacy, visual impairments, or lack access to computers.

When completed, the agreement will extend a deep relationship between IBM and Bharti Airtel
that was established in 2004 when South Asia’s leading mobile communications provider tapped
IBM to run the IT and applications for its entire Indian network. Since then, Bharti Airtel has
seen explosive growth – from six million subscribers to more than 150 million today. Bharti
Airtel plans to replicate the success of its relationship with IBM by lowering the barrier to entry
for the people of Africa to own a mobile device.

According to a Deloitte report commissioned by the GSMA, only 40 out of every 100 Africans
have a mobile phone but demand is growing at an average rate of 25 percent annually, while a 10
percent rise in mobile penetration increases gross domestic product by 1.2 per cent in developing
markets.

Sunil Bharti Mittal, Chairman and Managing Director, Bharti Airtel, said: “There are huge
opportunities throughout Africa to transform how people communicate and how communities
interact. Delivering on that opportunity through affordable mobile communications for everyone
is our focus.

36
“We are delighted to extend our successful relationship with IBM in South Asia to Africa. This
transformational business delivery model, which will be a first in Africa’s telecom industry, will
bring enhanced efficiencies to our operations and help us deliver world‐class mobile services to
our customers.

“It will also offer career enhancement opportunities to Bharti Airtel’s employees in the IT
domain who will now get exposure to global best practices and latest technologies with IBM.
More importantly, this alliance underlines our commitment to the growth of Africa’s ICT sector
and contributes towards bridging the digital divide on the continent.”

Samuel J Palmisano, Chairman, President and chief executive officer, IBM, said: “We see our
strategic relationship with Bharti Airtel as a powerful example of building a smarter planet. We
have achieved great success together in India, and now we are bringing that model to Africa. By
building a 21st century telecommunications infrastructure for the continent – in effect, treating
all of Africa as a system of systems – we expect to help spark transformation not just in
communications but across all sectors of society – empowering businesses, governments and
individual citizens to connect, innovate and achieve economic growth.”

Under the 10‐year planned agreement IBM will consolidate 16 different IT environments across
Bharti Airtel’s African operations into an integrated IT system and will oversee the management
of all of the applications, data center operations, servers, storage and desktop services.

IBM will provide customer support applications that include customer relationship management,
billing, and self‐care that will empower customers and assist Bharti Airtel in delivering
innovative and convenient 2G and 3G mobile services. In addition, IBM plans to deploy a
powerful content management system to offer rich media content such as music and video over
mobile devices, while simultaneously facilitating the growth of the application developer
community in Africa. The strategic partnership will enable Bharti Airtel to scale its network and
systems to more than 100 million African customers by 2012.

IBM will also build automated internal systems for Bharti Airtel’s business which will result in
enhanced efficiency and empowerment for employees through applications that deliver processes

37
and data in real time basis – both on personal computers and mobile devices. Business partners
such as distributors and retailers will benefit from on demand data by simply using their mobile
devices to increase their efficiencies. IBM will also be responsible for deploying robust
information security systems that will provide enhanced privacy protection for customer data and
enhance the resilience of enterprise systems against threats.

Bharti Airtel has operations in Burkina Faso, Chad, Congo Brazzaville, Democratic Republic of
Congo, Gabon, Ghana, Kenya, Madagascar, Malawi, Niger, Nigeria, Seychelles, Sierra Leone,
Tanzania, Uganda, and Zambia.

Other initiatives

Recognising that a good education is a child’s strongest barrier to poverty, Airtel strives to reach
and uplift the underprivileged in society by investing in education and other social services aside
from its core business.

The adopted Schools Initiative, launched in 2010 in conjunction with the local government,
provides refurbishment, uniforms, scholastic materials, furniture, teaching aids as well as
broadband connections to schools in need.

To date, 9,000 underprivileged children across 14 schools have benefitted from the community
development initiative. The company has decided to continue the programme this year to
enhance and improve a number of adopted schools across 16 countries on the continent.

38
 Post Merger Analysis

Bharti Airtel Before and After the Deal

Parameters Bharti Airtel Zain (Africa) Combined

FY 2011

Revenues 8.03 bn USD 3.667 bn USD 11.697 bn USD 12.01 bn USD

PAT 1.84 bn USD ‐0.1 bn USD 1.83 bn USD 1.77 bn USD

EBITDA 3.4 bn USD 1.1 bn USD 4.5 bn USD 5.5 bn USD

EBITDA
40.5 % 29.6% N.A 38.1%
Margins %

African Contribution:

• During the 3QFY11, revenues for the African operations were at `40.5 billion while
EBITDA was at `7.7 billion implying margins at 19.1%. However the EBITDA margins
excluding the rebranding related cost were at 25.1%.
• MNP is launched in Kenya by April 2011, also later implemented MNP in Nigeria,
Ghana, and Uganda etc.
• Bharti bought significant potential to offer data services in Africa and had 3G licenses
in 9 countries in Africa.
• The management had indicated that it will have stable and competitive prices in
Africa and will not indulge in price wars.

39
Performance Highlight

Consolidated
(In Cr)
Particulars 2015 2014 2013 2012 2011
Total Revenue 94614 85864 80359 71506 59602
Y-O-Y Growth 10.19% 6.85% 12.38% 19.97%
EBIT 11566 7811 4990 6518 7678
Y-O-Y Growth 48.09% 56.54% -23.45% -15.11%
PAT 5308 3019 2275 4258 5899
Y-O-Y Growth 75.81% 32.75% -46.58% -27.82%

Airtel Africa
(In MN)
Particulars 2015 2014 2013 2012 2011
Gross Revenue 269070 272488 240439 198265 130843
Y-O-Y Growth
(%) (1) 13 21 52
EBIT 11781 17141 15569 14147 2381
Y-O-Y Growth
(%) (31) 10 10 494

Analysis

Consolidated performance of Airtel seems Growing as the company seems to be increasing its profit year on year
basis since 2012 from -27.82% till in 2015 at 75.81%. Company posted losses in year 2012 and 2013 since it had
taken huge loans to acquire Zain Africa company to expand its business in Africa. Further the company is
expected to make huge profits in year 2016 since its widest 4g service in India, Africa and South Asia wherein
almost had a monopoly for a quarter in 4g service.

Companies Consolidated Total revenues were decreasing in years 2013 and 2014 but in year 2015 it managed to
again increase its revenue significantly through its excellent services and offers. It managed to attract more
customers and increase its services. It is expected to increase even further in year 2016 due to its excellent
internet service mainly in India. Airtel’s wide range of internet service and also 1st company to start 4g service
will definitely attract more customers till the time Rivals starts providing 4g service.

About Airtel’s performance in Africa, it is clearly seen that since the time it entered Africa by acquiring Zain

40
Africa it has continuously failing to increase its Gross Revenue and EBIT. It is clearly seen that companies
Revenue growth has decreased from 52% in 2012 to -1% in 2015. Also its EBIT has decreased tremendously.
This clearly indicates that companies deal with Zain Africa was not a Profitable Deal.
According to recent news by Business Standard Airtel signed a Deal with French telecom major Orange for
acquiring its operations in two African countries, Burkina Faso and Sierra Leone the deal amount was not
revealed but analysts says it is abaout $800-$900mn. 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.
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 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.
Airtel sold its two operations to Orange to pay off its debt which stood around $10.67bn in 2014-15 and also was
running in losses since it acquired Zain Africa as it net loss stood around $585mn from its African operations in
2014-15. 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 EBITDA by March 2013.

41
 Post Merger Integration and Challenges

BAL has a fully staffed integration team. They have already made changes in the existing
management and a few Africans have been brought to work in India to understand the operation
of BAL and scale at which they operate. Nairobi has been designated at the Head quarter and
around 40 to 50 people from India have been moved to Africa. BAL is mainly encouraging local
talent.

BAL realises that the opportunity in Africa is huge and is even greater than that in India. They
are viewing the African assets in an independent fashion.

There will be significant amount of challenges BAL will face in order to achieve successful post
merger Integration

• Firstly handling 15 regulatory will be a challenge.

• Macroeconomic environment is not exactly welcoming for business, the continent has
faced political instability and corruption and high crime rate. Theft of equipment and
inadequate electricity would slowdown the operations.

• Competition in Africa will only grow as it is the most sought out destination for
companies chasing growth

• Interacting and managing local talent will something new and challenging for the BAL
management

• Zain Nigeria may cause legal hassle for BAL as Econet a major telecom player in Nigeria
claims that it has the first right of refusal was breached when V mobile was sold to Zain
in 2006. A legal battle is on in the UK court. Nigeria is one of the highest revenue grosser
in ZAF operation

42
 Conclusion

BAL cross border acquisition of ZAF has made it one of the top glob al players i n the telecom
industry. Though the acquisition was not cheap and the stock price corrected post the merger
announcement there is huge potential in Africa and if BAL is able t o leverage it management
team capability and experience to replicate its successful business model in Africa the deal will
be able to create shareholder value in the long run. Cross border acquisition was also the best
strategy for BAL to counter the hyper competition India. It also provides it the much needed
diversification in revenues. The funding of the deal is strategically done through an LBO
providing BAL the levy to consolidate it operation in rural India and in the 3G space. Though the
potential is hug e the road ahead is not easy BAL will have to turn around the ZAF’s current loss
making operations and grow at the rate of 22 to 25% to justify the valuation behind the deal.
Given the cultural differences, challenging macro and business environment the turnaround will
not be easy for the BAL management. Airtel- Zain Africa has been a Loss Deal for Airtel since it
has continuously posted losses in Africa from time it entered and also now has sold 2 of its
operations to Orange to overcome its losses and Debt which it raised to acquire this Deal.

43
 Learning’s and Outcome

 Overview about telecom industry

 Learnt about Largest ever telecom takeover by an Indian Firm
 How and Why Airtel takeover Zain Africa
 Impact or outcome of deal for Airtel

44
 Bibliography

www.airtel.in

www.zain.com

www.telecoms.com

http://economictimes.indiatimes.com

http://in.reuters.com

http://www.financialexpress.com

http://www.bseindia.com

http://www.moneycontrol.com

http://www.zeenews.com

www.business‐standard.com

http://www.globaltelecomsbusiness.com

www.businessweek.com

http://blog.angelbroking.com

http://www.business-standard.com/article/companies/bharti-airtel-sells-burkina-sierra-leone-biz-
to-orange-116011300126_1.html

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