Phone
The 52-year-old self-made entrepreneur, who built his mobile-phone company from scratch into Indias largest wireless operator with a market value of $23 billion, has failed twice to take over South Africas MTN Group Ltd. Mittal is seeking assets in Africa as an increasingly crowded market at home brings him call rates of less than half a U.S. cent a minute. He cant afford to fail a third time, investors said.
“The credibility of Mittal will be at stake this time; your ability to close deals, your killer instinct,” said A. S. Thiyaga Rajan, senior managing director at Aquarius Investment Advisors Pte in Singapore, which manages $260 million in assets, including Bharti shares. “He wasnt able to convince MTN that they would be better off by going to bed with them. If he doesnt succeed now, then what next?”
Completing the purchase would give Bharti 42 million customers across 15 African markets, creating the worlds ninth- largest mobile-phone operator. He needs to convince investors who drove Bharti stock to a 16-month low within two days of its Feb. 15 announcement that the purchase fits Bhartis larger strategic plan and that hes not paying too much. Mittal said he can do both, given a little time.
“We believe we have the right price,” he said in an interview in Barcelona, Spain. “Its not a distressed asset for sure but is it over the top? The answer is no. Analysts dont have enough information at the moment, and I am constrained from giving out more information.”
Search for Size
Bharti investors have seen their holdings lose 22 percent of their value since January 2009. Profit growth has slowed for 10 straight quarters for South Asias largest mobile-phone company as price competition in India from newcomers such as Japans NTT DoCoMo Inc. and Norways Telenor SA slashed rates for many of Bhartis 125 million customers.
Bharti was the second-worst performing stock amongst 87 telecommunications stocks tracked globally by Bloomberg, and is the worst performing member this year.
In the past year, Mittal started mobile-phone operations in Sri Lanka and paid $300 million to buy 70 percent of the Bangladeshi assets of Abu-Dhabi based Warid Telecom.
If the Zain transaction succeeds, Mittal will create a company selling mobile services to 1.75 billion people from the western coast of Africa to the Himalayas. In the countries Mittal is negotiating to buy Zain assets, mobile penetration is an average of 36 percent for a population of 479 million, according to a September Zain investor presentation.
Inferior Profits
“The real attraction lies in the size and geographies” that Bharti may be able to access, said John Slettevold, an analyst with UBS Securities in Johannesburg.
Frances Vivendi SA walked away from a Zain Africa deal in July after the asking price of $10 billion didnt fit “its usual criteria of profitability and financial discipline.”
“The prevailing sense that there is no future in developed markets is pushing up the prices for assets in developing markets,” said Aquariuss Rajan.
Nigerian Woes
Fissures have appeared, suggesting the Zain deal wont be easy. Johannesburg-based Econet Wireless Holdings Ltd., involved in an ownership dispute with Zains Celtel Nigeria B.V. unit, this week said itll block the sale of the unit.
Mittal says he isnt worried. If Zain says they are “selling something that they own, I have to believe them,” he said. “The seller will definitely have to give the comfort to the buyer that what they are selling is correct.”
Nigeria, Africas largest mobile-phone market by subscribers, is a key piece of Mittals purchase.
Zain has lost both money and subscribers in Nigeria in the six months ending Dec. 31, according to Macquarie. Zain invested $435 million in Nigeria in the last 12 months, while revenue per subscriber fell 30% in the period to $7. Zains Nigeria unit lost $58 million, contributing to a net loss of Zains Africa assets of $35 million.