Bharti: We're paying just $9b for Zain

Ruth David
17 Feb 2010

Bharti Airtel has been forced to clarify its high $10.7 billion price tag for Zain Group’s African assets, as its stock endured a second day of pummeling.

The firm said on Tuesday that the total agreed enterprise valuation of $10.7 billion is “likely to result in a total payout of around $9 billion.”

In other words, the $10.7 billion valuation includes net debt of around $1.7 billion.

Bharti added that $700 million of the purchase amount was not due until one year after the deal closed.

The statement also said that Bharti and Zain “have also agreed to a break-fee of $150 million, payable by either side on terms and conditions customary to a deal of this nature and size”.

On Monday, Bharti announced that it was in exclusive talks to acquire Zain Africa (excluding operations in Morocco and Sudan) for price of $10.7 billion.

The high price resulted in Bharti’s share price on Monday closing down 9.2%. The stock continued its losing streak Tuesday, falling 4.5% to 272.45 rupee ($5.92).

Analysts aren’t too hot on the deal either - citing high valuations, Zain’s debt burden and the fact that Africa already has an average mobile penetration rate of 37%.

“Assuming better execution and funding leads to [Zain’s] ebitda rebound (we estimate $1.2m in 2010), Bharti’s bid equates to EV/E of 9x, a premium to Bharti’s present multiple of 7x,” said Citi analysts.

“Bharti Airtel is looking more aggressive after failure of talks with MTN twice,” added analysts at Prabhudas Liladher.

“Though the deal prima facie is looking expensive and earnings dilutive, the African assets offer a good strategic fit for Bharti’s future growth prospects.”

Zain’s African operations (excluding Sudan and Morocco) have a subscriber base of about 42 million, according to Credit Suisse.

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