February 15, 2010
Bharti Airtel Bids for Zain’s African Phone Customers

By HEATHER TIMMONS
NEW DELHI — Bharti Airtel, India’s largest mobile phone company by subscribers, offered to buy the African operations of the Kuwaiti telecommunications company Zain in a deal valued at about $10.7 billion.

The two companies will now be in exclusive talks until the end of March to work out the details of the deal, said one person involved in the negotiations who did not want to be named because he was not authorized to speak publicly about the deal. A statement about the exclusive talks was expected later Sunday.

Zain’s African assets have been on the block for about seven months and attracted interest from several others companies, including Vivendi and China Mobile. But Bharti Airtel put in the most “compelling offer,” this person said.

Zain, which has 71.8 million subscribers in the Middle East and Africa, said in a statement Sunday that it had received an offer for the African operations, excluding Morocco and Sudan, but did not name the bidder. Zain’s board was meeting Sunday to discuss the proposal, the company said.

About 42 million of Zain’s customers are in Africa outside of Morocco and Sudan. The company is 25 percent owned by Kuwait’s sovereign fund, the Kuwait Investment Authority, and any deal is expected to require the approval of Kuwaiti government.

The offer is Bharti Airtel’s third attempt to expand outside India’s cutthroat mobile phone market by doing a deal in Africa. Bharti Airtel, which has 125 million mobile subscribers, had no comment Sunday on any offer.

The company tried twice to strike a deal with South Africa’s MTN Group. The first attempt failed after MTN suggested it take over Bharti Airtel instead. The later attempt was nixed by South African regulators, who said they wanted to maintain the South African character of the company and insisted MTN be listed on South Africa’s stock exchange after the deal, which violated some Indian regulations.

Zain, one of the Gulf region’s first telecommunications companies, has been in turmoil in recent months. Earlier this month, Zain’s chief executive for nearly a decade, Saad Al Barrak, stepped down without giving a reason for his departure.

Al Barrak oversaw an ambitious expansion plan in recent years that increased subscribers, but the company’s profitability has disappointed investors. Zain’s net income for the first nine months of 2009, the latest available, was $677 million, a 17 percent drop from the same period in 2008.

In January, Zain’s Saudi Arabia unit missed some loan covenants, spooking investors. Morgan Stanley cut its target price for Zain’s stock by 29 percent in February.

Zain said last week that Al Barrak was being replaced by Nabil Bin Salama, a former minister of communications as of Sunday.

In January, Bharti Airtel bought 70 percent of Bangladesh’s Warid Telecom and said it would invest $300 million in the market, in addition to the approximately $700 million it paid for the stake. At the time, Sunil Bharti Mittal, the chairman and managing director, said the deal “underlines our intent to further expand our operations to international markets where we can implant our unique business model.”

Trading in Zain’s shares was halted Sunday on the Kuwaiti exchange.