Bharti Airtel-Zain Merger

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Objectives
a)

To understand the term Merger & Acquisition, on global platform. To study & to understand the various Legal Aspects involved under such global M & A`s deal.

b)

c) To understand the criticalities & nitty gritty involved like what can be the payment structure, what can be the source of funding etc. in such mega deal.
d)

To understand 4/15/12

the strategy behind , why a

 It is one of Asias leading integrated telecom services providers with operations in

Airtel

About Bharti-

19 countries across Asia and Africa.

It is structured into four strategic business units - Mobile, Telemedia, Enterprise

and Digital TV.

The mobile business offers services in India, Sri Lanka and Bangladesh.

Telemedia business provides broadband, IPTV and telephone services in 94 Indian

cities.
Bharti Airtel is the leader in Indian Wireless market with 24.0% market share,

followed by Reliance Communications 18.3%,Vodafone 17.5 %.

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About Zain
Zain, formerly MTC, was the first mobile telecommunications company in the Middle East when it started its operations in Kuwait back in 1983.

Its subsidiaries include; Mobile Telecommunications Company Lebanon (MTC) SARL, Lebanon, and Sudanese Mobile Telephone (Zain) Company Limited, Sudan.

It is a public company engaged, together with its subsidiaries, in the provision of mobile telecommunication and data services, including operation, purchase, delivery, installation, management and maintenance of mobile telephones and paging systems in Kuwait and 21 other countries in the Middle East and North Africa.

Zain Africa is Wholly owned subsidiary of Zain, incorporated in Netherlands and held the African operations of Zain.

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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.

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Transaction Details of Bharti Airtel-Zain

Acquirer Seller Target Acquisition Bharti Airtel Limited Mobile Telecommunications Company KSC Zain Africa International BV Bharti Airtel Limited indirectly acquired 100% of Zain Africa International BV and its business operations in Africa from Zain under a privately negotiated agreement.

Mode of acquisition Security (Share) Sale Consideration USD 10.7 billion Mode of Payment All cash deal Bharti Airtel to pay: a) USD 8.3 billion within three months from the date of closing; b) USD 700 million after one year from the date of closing; and c) USD 1.7 billion assumed as debt on the books of Zain. Funding 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. b) Bharti Airtel to avail of a rupee loan of USD 1 billion equivalent from SBI Group.

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Legal & Regulatory Considerations

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Merger: A Merger is a legal term which means dissolving the earlier business & folding Used its assets & liabilities into a newly created third entity, it entails the creation of a new corporation. Like Arcelor-Mittal merger in Steel Industry.
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Glossary of Terms

Acquisition: When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the Target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. Like TATA`s acquisition of Land Rover & Jaguar from Ford & Tea Brand Tetley of U.K./Steel Company Corus of U.K. SPVs/SPEs (Special Purpose Vehicle or Special Purpose Entity): A subsidiary company created as separate legal entity for large term projects without putting parent company at financial risk. Its legal status makes its obligations secure even if the parent company goes bankrupt. Like TATA created two SPV`s-TML Holdings Pvt.Ltd.in Singapore & Jaguar Land Rover Ltd.in U.K.while acquiring Land Rover & Jaguar. RoFR(Right of First Refusal): A contractual right to holder regarding entitlement to shares before the shares are made available to third party or public at large.Like in the case of ONGC/Cairn/ Vedanta. ONGC believes that by virtue of holding 30% in the Rajasthan block, it has the pre-emption or RoFR to buy Cairn India in case the company's ownership changed.

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Overseas Direct Investment

Any Indian company if wants to acquire or invest in foreign company , it must comply with the FEMA ((Transfer or Issue of any Foreign Security) Regulations, 2004 (ODI Regulations).
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It means under ODI rgulations,an Indian company is permitted to invest in a joint venture/wholly owned subsidiary up to 400% of the net worth of the Indian company in the form of equity/loan or guarantee without seeking prior approval of RBI.
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4/15/12 v Regulation

13 of the ODI Regulations permits a

Guarantees Regulations
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In means , a company in India promoting or setting up joint venture or subsidiary company has to give guarantee on behalf of the subsidiary company to the bankers for the loan. In this case, Bharti has to provide corporate guarantee on behalf of its SPV`s i.e. both Singapore & Netherlands SPV`s to bank for the loans for financing the transactions.

Hence it attracts the regulation 5 (b) ) of Foreign 4/15/12 Exchange Management (Guarantees) Regulations,
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Competition Commission of India/Anti Trust Laws

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Competition Act 2002 enacted to replace Monopolies & Restrictive Trade Practices Act, 1969 It was enacted to 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).
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In the current case: - Bharti-Zain has to give details of the acquisition to CCI. - Upon receipt of such notifications,CCI will conduct 4/15/12 investigation on the
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v Econet Wireless International: A major telecom player in Nigeria, wanted to use its pre-emption rights 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.

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.

Till the time the ownership issue over Zain

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Nigerian Hurdle

Congo Controversy
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The Government of Republic of Congo said that they had not been informed of Bharti Airtels deal with Zain and that the deal was a clear violation of the law in our country. The Government also claimed that the deal is in contravention to Zain`s local mobile license .

Until it would be difficult for the Bharti to 4/15/12get all regulatory

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Gabon Glitch
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In this case, the Government of Gabon raised a regulatory objection to the deal alleging that Zain had not complied with certain telecom regulations in Gabon. The Gabonese Government has disapproved the sale of Zain`s Gabonese assets & reserves the right to take all necessary measures.

But off late, Government of Gabon gave its approval to the sale of Zains assets in Gabon to 4/15/12
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SWOT Analysis
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Strength:

Post acquisition, Bharti Airtel will become fifth largest service provider in

terms of the number of subscribers.

The deal would give Bharti 42 million subscribers in 15 African countries,

which have a combined estimated annual revenue of $3.6 billion

Bharti, largest telecom player in India, can replicate the success of India in

Africa

Strategic Alliance with other stake holders, including Nokia, SingTel & Sony

Ericson
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Weakness
Bharti has paid a heavy price for the deal

Zain Africa has made a net loss of USD 112 million in the nine months to

September 2009. Seven of Zains African units are loss-making, including its highest revenue earner, the Nigerian arm, Zain Nigeria.

The deal is highly volatile and carries huge commercial risk for Bharti Airtel

The loan would be a drag on Bharti Airtel's earnings with no immediate

returns expected from the loss-making target.

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Opportunity

q Telecom penetration in African countries varies from 37 per cent to 65 per

cent. There are few markets with penetration less than 40 percent

q The African market is homologous to Indian market in term of its

structural similarities.

q Monthly ARPU on the Continent averages USD 7.5, which is higher than

Indias ARPU of USD 5

q Africa is too good an opportunity for Bharti Airtel to experiment the model

that it has mastered in India, particularly its rural strategy.

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Threat

q Zain Africa is in trouble and financial paralysis is looming over its head

q Bharti Airtel will have to put in a lot of effort to align the varied cultures; with 15

countries to tackle it definitely will be a nightmare.

q Bharti-Zain will be getting a tough fight with rival like MTN and China Mobile

q There are greater political and economics risks in Africa .

q Most of the countries are political unstable and operation are still loss making.

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