Bharti Airtel acquired Zain's African mobile operations in 15 countries for $10.7 billion. This gave Airtel a strong presence in Africa's growing mobile market and made it the world's fifth largest wireless company. However, nine of Zain's markets already had over 33% penetration and were losing money. While the deal expanded Airtel's global reach, it reported a 27% fall in profits as it struggled with losses from Zain's operations and higher tax rates in Africa.

1. Annexure-V- Cover Page for Academic Tasks
Course Code: MGT 597 Course Title: Corporate Restructuring
Course Instructor: Syed Tabrez Hassan
Academic Task No.: 2 Academic Task Title:
Date of Allotment: 24/01/2014 Date of submission: 14/02/2014
Student’s Roll no: A-30 Student’s Reg. no: 11013293
Student’s Name: Sajad Ahmad Dar
Evaluation Parameters :
Learning Outcomes: (Student to write briefly about leanings obtained from the academic tasks)
Declaration:
I declare that this Assignment is my individual work. I have not copied it from any other
student’s work or from any other source except where due acknowledgement is made explicitly
in the text, nor has any part been written for me by any other person.
Evaluator’s comments (For Instructor’s use only)
General Observations Suggestions for Improvement Best part of assignment
Evaluator’s Signature and Date
Marks Obtained: Max. Marks:

2. About Bharti Airtel Limited: Bharti Airtel Limited, a group company of Bharti Enterprises is
among Asia’s leading integrated telecom services providers with operations in India, Sri Lanka
and Bangladesh. The company has an aggregate of around 137 million customers across its
operations. Bharti Airtel has been ranked among the six best performing Technology
Company’s intheworld.
Bharti Airtel is structured as four strategic business units - Mobile, Telemedia, Enterprise and
Digital TV. The mobile business offers services in India, Sri Lanka and Bangladesh. The
Telemedia business provides broadband, IPTV and telephone services in 94 Indian cities. The
Enterprise business provides end-to-end telecom solutions to corporate customers and national
and international long distance services to carriers. The Digital TV business provides DTH
services across India. All these services are provided under the Airtel brand. Airtel’s national
high-speed optic fiber network currently spans over 118,337 Rkms across India.
About Zain:
Zain Group is a mobile telecommunications company founded in 1983 in Kuwait as MTC or
Mobile Telecommunications Company, and was later rebranded to Zain in 2007. Zain has
commercial presence in 8 countries across the Middle East and North Africa with about 46.1
million customers as of 31 December 2013. It employs over 6000 people. The group CEO is
Scott Gegenheimer, who was appointed in December 2012
Airtel’s acquisition of Zain in Africa
Airtel acquired Zain at about US $ 10.7 billion to become the fifth biggest telecom major in the
world. Since Zain is one of the biggest players in Africa covering over 15 countries, Airtel’s
acquisition gave it the opportunity to establish its base in one of the most important markets in
the coming decade.
Bharti Airtel Limited Asia’s leading telecommunications service provider entered into a legally
binding definitive agreement with Zain Group to acquire Zain Africa. Under the agreement,
Airtel had acquired Zain’s African mobile services operations in 15 countries with a total
customer base of over 42 million. Zain was market leader in ten of these countries and ranks

3. second in four countries. With this acquisition, Bharti Airtel became the world’s fifth largest
wireless company with operations across 18 countries. Bharti group’s global telecom footprint
will expand to 21 countries along with the operations in Seychelles, Jersey, and Guernsey. The
company’s network had now cover over 1.8 billion people, the second largest population
coverage among Telco’s globally.
Benefits from the Deal
 Airtel had got a total hold in the African market that would help them get a stronger
presence in the continent.
 Africa was attractive for Airtel as the mobile user base was low there, with just over a
third of the population having a mobile.
 Telecom Zain's 15 African operations included in the deal have a combined user base of
about 42 million, and the operator is No.1 in 10 markets.
 The market was also showing early signs of saturation, with penetration reaching about
45 percent. To beat the slowdown, Airtel has been scouting overseas, with a focus on
high growth-potential emerging markets. After failing to get a deal with South Africa's
MTN Group, the company had set up a new unit to drive overseas expansion.
Why Zain accept the acquisition deal
The principal issue is one of valuations, that Zain’s African operations are losing money. When
the acquisition was taken place the Zain was in the losses, that is why they accept the acquisition
deal of Airtel. In 2009 the principal shareholders of the Zain Group of Kuwait service providers,
had been looking for a buyer for the company’s assets in Africa In the nine months to
September 2009, they reported a net loss of US$112 million against a profit of US$169 million
in the corresponding period the previous year. Seven of the 15 countries reported losses. The
highest revenue earner, Nigeria, which was nudging the US$1 billion mark, lost US$88 million.

4. Major Issues in the Deal
 Zane’s African business had $2 billion of debt on its books, when acquisition was taking
place in 2010.
 Regulatory issues, which were widely blamed as a deal-breaker in the Bharti/MTN talks,
are not seen as a major concern. But legal disputes surrounding Zain's Nigerian unit, the
biggest among its African assets, could potentially delay or disrupt a deal.
 Airtel’s success with Zain was hinge upon how fast it is able to grow the African
operations, post acquisition. But this looks much more daunting. This is because nine out
of Zain’s 15 African markets are well penetrated with more than 33% subscriber
population.
 Further, mobile penetration exceeds 45% in five markets. These include Ghana and
Nigeria where Zain’s operations are bleeding due to stiff competition from MTN. Zain
was also suffering losses in Uganda, again a territory with 35% penetration and has
MTN as the market leader.
 With substantial market penetration and MTN as a bigger competitor, Bharti found it
very tough to turn around Zain’s loss-making operations. Zain’s African operations had
posted a loss of $111 million in nine months ended September 2009.
 A dispute over the ownership of Zain’s crucial Nigerian unit as well as a legal offensive
by a minority shareholder could complicate for this deal.
Deal structure
This was all in cash deal Of the $10.7 billion enterprise value of Zain, Bharti paid $8.3 billion
upfront and $700 million after a year It also take over approximately $1.7 billion of Zain's debts
as on December 31, 2009 Of the $8.3 billion paid to Zain..
Source of funds
Airtel raised debt from a consortium of foreign banks and State Bank of India with the lead-
arranger and lead-advisor Standard Chartered Bank committing the highest amount $1.3 billion,
followed by Barclays at $900 million. The rest of the co advisors ANZ, BNP, Bank of
America-Merrill Lynch, Credit Agricola CIB, DBS, HSBC, Bank of Tokyo-Mitsubishi UFJ and

5. Sumitomo Mitsui Banking Corporation allocated $600 million each. State Bank of India agreed
to an up to $ 1 billion loan.
Problems arise (Airtel profit falls 27% on Zain deal)
There was 27% fall in its consolidated net profit largely on account of losses from its acquisition
of Zain’s operations in 16 countries in Africa. Airtel reported a net profit of Rs 1,661 crore for
the second quarter of 2010, down from Rs 2,263 crore reported in the same quarter last year.
The Telco reported a 47% jump in revenue to Rs 15,215 crore largely due to Rs 3,891 crore
from its Africa operations. Airtel’s revenue in the same quarter last year was Rs 10,379 crore.
Average revenues per user (ARPUs) have been falling. It dropped 12% in
the fourth quarter of 2010-11.
This was the first full quarter for the firm since its acquisition of Kuwait-based Zain’s telecom
assets for around $10.7 billion (around Rs 47,500 crore today).
The Telco was able to generate around $1 billion in free cash flow, enabling around $800-900
million pre-payment of more than $10 billion debt on its books arising from the Africa
acquisition and payment for next generation spectrum in India.
The firm’s profits were also hit by a higher tax rate on an average from its African assets. The
tax rates in India average out to around 16-18%, but in Africa they average out to around 30-
35%.
Analysis
The deal made sense for Bharti for the following reasons:
Low Financial leverage
 Airtel had a very low “Net Debt to Equity Ratio” of 0.05 at the end of Dec. 2009 which
means that it was virtually a debt free company.
 It is good to have low debt but zero debt is not a desirable situation as debt can increase
the shareholders’ return on their investment due to tax advantages associated with
borrowing.
 Airtel is a profitable company with over 40% EBIDTA margins which is higher than the
cost of debt. This means that it is better for the company to pay interest than paying
dividends to a large number of shareholders and hence it should either reduce the

6. shareholding (through share buyback) or increase debt and deploy debt in a profitable
way. Bharti selected the second option and took debt to buy Zain that would return
higher profits in the long term.
Thank You
Sajad
Ahmad

7. shareholding (through share buyback) or increase debt and deploy debt in a profitable
way. Bharti selected the second option and took debt to buy Zain that would return
higher profits in the long term.
Thank You
Sajad
Ahmad