The SFR stake is the latest of Vodafone's minority holdings to be divested

International operator Vodafone has announced that it is to sell its 44 per cent stake in French carrier SFR to its partner in the operation, Vivendi, for €7.95bn. Vivendi will pay €7.75bn in cash, with a final dividend from SFR of €200m paid on completion of the deal. The move is the latest in a planned series of divestments as Vodafone exits markets in which it does not have majority ownership.

Since September last year Vodafone has unloaded its stakes in China Mobile and Japanese player Softbank.The sale of Polish carrier Polkomtel, in which Vodafone holds a stake of just under 25 per cent, meanwhile, is ongoing. With the SFR stake now also to be jettisoned, the ever-present speculation over the future of Vodafone’s participation in Verizon Wireless, where it holds 45 per cent, will doubtless intensify.

Ovum analyst Emeka Obiodu said it was “surprising” that Vodafone had commanded such a high price for its holding in SFR. “At £6.8 billion, the price is noticeably higher than what Vivendi was reportedly prepared to pay. Several years ago, the balance of probabilities favoured Vodafone to take over SFR. By 2010, a shift in focus at Vivendi, and Vodafone’s unwillingness to hang onto minority stakes made a deal possible. Vivendi may have thus paid the price to push through the deal during this window in Vodafone’s strategic repositioning.”

Vodafone will use the sale to return €4.5bn to its shareholders through a share buyback.SFR will become a partner operator to Vodafone, allowing the UK-headquartered carrier to maintain consistent offerings to roaming customers. The deal is expected to close in the second quarter of this year.

Vivendi looks to Brazilian acquisition

French conglomerate Vivendi has launched a €2bn offer for 100 per cent of Brazilian fixed line carrier GVT, giving it access to a wide range of services for the Latin American market, including VoIP telephony, corporate data, broadband, internet services and pay TV.

On Wednesday, Vivendi said it had signed an agreement with GVT’s two largest shareholders, Swarth Group and Global Village Telecom, allowing the French firm to launch an offer for 100 per cent of GVT’s share capital.

Vivendi’s offer values the firm at around €2bn. But the deal is conditional on Vivendi acquiring a minimum of 51 per cent of GVT’s share capital, with the two controlling shareholders agreeing to tender a minimum of 20 per cent of GVT’s outstanding shares out of around 30 per cent they currently own to get the French company started. Presumably, Vivendi will have to find the other 30 per cent or so on the public stock exchange.

GVT is also seeking to waive an “anti-takeover mechanism”, otherwise known as a poison pill, which could end up forcing Vivendi to make a higher offer, suggesting the shareholders are more than happy with what Vivendi has put on the table.

As of June 30, 2009, GVT had approximately 2.3 million customer lines in service, including voice, broadband, data and VoIP services. It is one of the smaller players competing against Latin American giants like Oi/Brasil Telecom, America Movil and Telefonica.

Vivendi, which operates the SFR network in France, is seeking to increase its footprint in emerging markets beyond Morocco, where it controls Maroc Telecom Group.

Vivendi calls off talks with Zain

French conglomerate Vivendi has called off its talks with Kuwait-based Zain, over the acquisition of the operator’s African assets.

The figure being touted for the firm’s African portfolio is between $10bn and $12bn, and Vivendi initially said the move would fit in with its strategy of seeking growth opportunities in emerging markets, although it appears the move would not have been in the nest interest of its shareholders.

Zain said that it has received expressions of interest from several parties including other operators to acquire the African assets.

The decision to sell the African assets has raised some eyebrows. Zain acquired African player Celtel in 2005 for $3.36bn, and has continued to invest and acquire in the region ever since – most recently exploring opportunities in Morocco in March 2009. It has also broken ground internationally by establishing a pan-regional network, the use of which incurs no roaming charges for end users. The African portfolio was central to that strategy.

Moreover, the firm paid out for a major rebrand last summer, that saw all of its African properties rebadged with the Zain colours, and it has always pitched its MEA empire building as the second step in a process that will ultimately see it expand across the globe.

Zain yesterday said that net income for the first half of 2009 was up 4.4 per cent to $533.5m, while revenues jump 24 per cent to $4bn.

But observers have noted that Zain may have little choice but to sell its African portfolio, or seek co-investors to take it forward. While it’s fearless spending created an aura of invincibility around the company, the financial reality is otherwise. Zain is routinely described as “highly leveraged” and, while analysts note that it has good cashflow, the firm looks unable to shoulder its debts any longer.

The first half results have not been broken down yet, but results for the three months to end March 2009 show that the Sub-Saharan African segment of the firm’s portfolio made a loss of $4.95m, down from a profit of $127m for the same quarter in 2008. The Middle Eastern properties (with the exception of Saudi Arabia) all turned profits, meanwhile, with the leaders Sudan (counted with the Middle Eastern portfolio by Zain, and not part of the Celtel acquisition) recording net income of $120m for the quarter, Kuwait US$116m and Iraq US$54m.

Recently, an executive at Zain – which has moved its headquarters to Bahrain but is still listed on the Kuwait Stock Exchange and is 25%-owned by the Kuwait Investment Authority, a state investment fund – was quoted in a Kuwaiti newspaper as saying as much. That followed a period of two or three weeks in which Zain had declined to comment as speculation mounted about its plans in Africa, after reports that it had received offers for its units there from French media-and-telecoms group Vivendi, among others. Later last week, Zain released a statement to the KSE saying that it had appointed Swiss bank UBS along with other consultants to conduct a review of its strategy.

If Zain were to sell its operations in sub-Saharan Africa, it would fly in the face of the company’s stated strategy for the past several years. Zain’s acquisition in 2005 of Celtel International, which forms the main part of the group’s presence in sub-Saharan Africa, was a key step in the pursuit of its goal of becoming one of the 10 biggest mobile operators in the world by 2011. Zain undertook a huge and costly rebranding operation in Africa in August to replace the Celtel name with the Zain brand across the continent. Zain has also been talking up the prospects of further acquisitions in Africa, even as the recession has taken hold. Zain Africa CEO Chris Gabriel said in November that the group planned to make three or four acquisitions in Africa over the year ahead. The economic downturn was an opportunity to go shopping, according to Gabriel. So why might Zain be considering the sale of its operations in sub-Saharan Africa? The answer is that although Africa offers opportunities, it is difficult territory in which to operate. Zain’s African operations contribute almost half of the group’s total revenues and accounted for 40.07 million of the group’s 64.66 million subscriptions at end-1Q09. Zain Nigeria is the group’s biggest unit in terms of both customers and revenues. In 1Q09, it accounted for 23% of Zain’s customers and 18% of the group’s revenues.

But Zain’s African units are generally less profitable than its Middle East operations. Zain Nigeria recorded EBITDA of US$128 million in 1Q09 but made a net loss of US$63 million in the quarter, compared with a net profit of US$22 million in the same period a year earlier. Including Zain Nigeria, seven of the 15 Zain units in sub-Saharan Africa made a net loss in 1Q09. The largest net income among the sub-Saharan Africa units in the quarter was the US$13 million recorded by Zain DRC. Meanwhile, some of Zain’s Middle East units are recording substantial profits. In 1Q09, Zain Sudan recorded net income of US$120 million; Zain Kuwait, US$116 million; and Zain Iraq, US$54 million. (Zain counts its operation in Sudan as a Middle East unit. The network was not part of Celtel, and Zain is not expected to sell it as part of any sale of its African operations.) Although Zain Nigeria generated the largest revenue in 1Q09, the group’s second-, third-, fourth- and fifth-largest revenues were recorded by Middle East units: Iraq, Kuwait, Sudan and Jordan, respectively. There is one exception to Zain’s profitable performance in the Middle East: In 1Q09, the new Zain Saudi Arabia unit made a loss in EBITDA terms of US$86 million, and a net loss of US$201 million. But the unit launched only recently, in August, and the Zain group might reasonably expect that it can be developed into a business that makes substantial profits.

Zain is trying to improve the efficiency of its operations, especially those in Africa, under the banner of its new Drive11 strategy, which was unveiled in April. As part of Drive11, Zain Nigeria has signed a managed-services contract with Ericsson that will see the Swedish vendor take over the running of its network. Zain has reportedly been offered about US$10 billion for its sub-Saharan Africa operations, a considerable increase on the US$3.4 billion that Zain – then known as MTC – paid for Celtel International, though under Zain’s control Celtel paid a further US$1 billion for Nigeria’s V-Mobile in 2006, and Zain paid US$120 million for a 75% stake in Ghana’s Westel in 2007. And the combination of the difficulties encountered in Africa and the prospect of a reasonable markup on the price paid for Celtel might be enough to convince Zain’s management, or its shareholders, to go ahead with the sale. (The KIA is the largest shareholder in Zain, followed by Kuwait’s Kharafi family.) So what would Zain do if shorn of its African units? The executive who gave the interview to the Kuwaiti newspaper last week said that Zain would focus instead on fast-growing markets in the Middle East and Far East. That might not be easy, since opportunities in the two regions are becoming scarce.

Zain was in talks to take on the third mobile license in Iran, the fastest-growing mobile market in the Middle East. But in the past few days the Iranian authorities have reportedly terminated those talks. And Zain is almost alone among its peers in the Gulf in not having established a presence in any Asian markets. Batelco, Etisalat, Q-Tel and STC have already made investments in Asia. The prospects of Zain’s African operations under new management depend largely on who that new owner might be. Vivendi, which controls France’s No. 2 mobile operator, SFR, already has a presence in Africa through its majority stake in Maroc Telecom, which in turn has subsidiaries in Burkina Faso, Gabon and Mauritania. Maroc Telecom is also in the process of acquiring Mali’s Sotelma. In 2007, Vivendi was in talks to buy a stake of 30-35% in Oger Telecom, which controls Turk Telecom and South Africa’s Cell C, for up to US$3 billion. (In the end, it was STC rather than Vivendi that bought a stake in Oger.) Vivendi was also a founding investor in KenCell, the operator that became Celtel Kenya and then Zain Kenya. But Vivendi sold its 60% stake in KenCell to Celtel in 2004. And buying all the ex-Celtel operations would be a major undertaking. India’s Bharti Airtel and Reliance Communications are also reportedly interested in the Zain units, even though Bharti is in merger talks with MTN. The low-cost Indian operating model might be what is needed in African markets as they become more competitive. African operators must also extend their coverage of hard-to-reach and lower-income rural customers if they are to maintain growth rates.

China Mobile and Vodafone have also been named as possible buyers. For China Mobile, it would be an opportunity to make its debut on the continent, and Vodafone would be able to consolidate its already substantial presence.  Whether Zain will sell, and to whom, remains unknown. With exquisite timing, Zain put out a press release this weekend to publicize its sponsorship of the forthcoming Mandela Day concert in New York, on the occasion of the birthday of African icon Nelson Mandela. But it might be a mistake to take that as a sign of Zain’s long-term commitment to Africa, since the concert takes place on July 18.

Vivendi to buy Zain Africa

French conglomerate Vivendi has ended weeks of speculation with the confirmation that it is in talks to acquire a majority stake in Zain’s African operations.

Rumours have been circulating over the past few weeks that aspiring global carrier Zain is looking to sell off its African portfolio. These rumours were supported by the recent revelation that Swiss bank UBS has been appointed to help the firm assess its operations.

Zain acquired African player Celtel in 2005 for $3.36bn, and has continued to invest and acquire in the region ever since – most recently exploring opportunities in Morocco in March 2009. It has also broken ground internationally by establishing a pan-regional network, the use of which incurs no roaming charges for end users. The African portfolio was central to that strategy.

Moreover, the firm paid out for a major rebrand last summer, that saw all of its African properties rebadged with the Zain colours, and it has always pitched its MEA empire building as the second step in a process that will ultimately see it expand across the globe.

But while the carrier has never had any trouble raising money in the past, even the wealth of the Middle East is not immune to a global financial crisis and, more recently, the firm has been laying off staff, hatching outsourcing plans with kit vendors and launching various cost management initiatives.

The figure being touted for the firm’s African portfolio is between $10bn and $12bn, and Vivendi said the move would fit in with its strategy of seeking growth opportunities in emerging markets.

However, the French firm cautioned that at this stage there is no certainty that the discussions will lead to an acquisition.

Zain fuels African sale rumours

Speculation that aspiring global carrier Zain is looking to sell off its African portfolio was fueled further this week, after it emerged that Swiss bank UBS has been appointed to help the firm assess its operations.

Rumours have been circulating over the past couple of weeks that the budding heavyweight is looking to dispose of its recently acquired African operations.

Zain acquired African player Celtel in 2005 for $3.36bn, and has continued to invest and acquire in the region ever since – most recently exploring opportunities in Morocco in March 2009. It has also broken ground internationally by establishing a pan-regional network, the use of which incurs no roaming charges for end users. The African portfolio was central to that strategy.

Moreover, the firm paid out for a major rebrand last summer, that saw all of its African properties rebadged with the Zain colours, and it has always pitched its MEA empire building as the second step in a process that will ultimately see it expand across the globe.

But while the carrier has never had any trouble raising money in the past, even the wealth of the Middle East is not immune to a global financial crisis and, more recently, the firm has been laying off staff, hatching outsourcing plans with kit vendors and launching various cost management initiatives. The figure being touted for the firm’s African portfolio is $12bn, and the buyer, according to reports, is an unnamed French player – which some industry commentators have identified as Vivendi.

A Zain spokesman told telecoms.com that the company is “running a strategic review to enhance shareholder value,” and has an ongoing relationship with UBS.

The spokesman also said that the firm: “Is continuously assessing the telecommunications landscape in the Middle East, Africa and Asia for value accretive acquisition opportunities. Zain will continue its evaluation of opportunities in this regard and, at this stage, is not in a position to articulate its strategies, direction, targets or plans for the market.”

Local reports suggest Zain could be about to strike a deal on its African portfolio

Nigerian newspaper Business Day has named French telecoms carrier Vivendi as the firm looking to build a deal with pan-MEA mobile operator Zain, after reports emerged last week that the Kuwaiti firm was looking to offload its African operations.

Neither firm has commented on this latest speculation.

Last week’s reports valued the deal at some $12bn and generated fierce debate among analysts as to the likelihood of such a development and the possible motivations behind it.

Business Day cited no sources for its information, but its report raises the interesting possibility that Vodafone may be involved, as the UK carrier jointly owns second-placed French cellco SFR with Vivendi.

Zain acquired African player Celtel in 2005 for $3.36bn, and has continued to invest and acquire in the region ever since – most recently exploring opportunities in Morocco in March this year. It has also broken ground internationally by establishing a pan-regional network, the use of which incurs no roaming charges for end users. The African portfolio was central to that strategy.

Last August the firm paid out for a major rebrand, that saw all of its African properties rebadged with the Zain colours, and it has always pitched its MEA empire building as the second step in a process that will ultimately see it expand across the globe.

If an outright sale of such a painstakingly built portfolio seems difficult to believe, some kind of share-swap is perhaps more plausible. Last month the carrier engineered a deal that saw the ownership of Zain Jordan given over to Palestinian operator Paltel in exchange for Zain being granted 56.53 per cent of the Palestinian player. A similar deal could be used to postion Zain for further expansion in more developed markets, which has long been its stated aim.

Thecla Mbongue, a senior analyst at Informa Telecoms & Media (ITM) was bemused by reports of a sale, although she did reveal that at a recent ITM event in Africa she had conversations with Zain executives who were grumbling about governance problems in certain African nations and the difficulties these created for firms doing business there. She also suggested that perhaps the firm is struggling with the low margins on offer in many of its African markets.

Other analysts were divided. One who has been tracking Zain closely and preferred not to be named described some kind of sale as “extremely probable”, adding: “Word has it that [Zain] have been trying to sell off properties. How many we don’t know but there is good reason to believe that this will happen. Zain is highly leveraged and financially constrained so there is a strong likelihood it will happen.”

Meanwhile Angel Dobardziev, an analyst at Ovum, said he believed it to be unlikely. “Africa is very strategic to Zain,” he said, “and it doesn’t look like it needs to make the sale. Zain does have a high level of debt, but it also has a lot of cash and, if you look at current asset prices, this is not a great time for a seller. But,” he added, “sometimes there are things that we don’t know about that are happening internally, and everything has its price.”

Zain itself played down the speculation, without actually ruling anything out. A spokesman for the firm said he was unaware of any strategic plan to divest the African operations, but pointed out that, in the current climate, anything is possible. He said, though, that such a move would not sit comfortably with “our stated plans to be a top ten global mobile operator by 2011″.

Senior Zain executives have said in the past that the firm is constantly running M&A simulations and is often in discussions that progress no further than the verbal. The firm’s spokesman did dangle a hint in front of the Informer, though, saying: “Attaining a top ten position does include forming strategic partnerships, which alludes to future possibilities…”

The carrier has never had any trouble raising money in the past, but even the wealth of the Middle East is not immune to a global financial crisis and, more recently, the firm has been laying off staff, hatching outsourcing plans with kit vendors and launching various cost management initiatives.

French conglomerate Vivendi said Thursday its mobile phone subsidiary, SFR, is in talks to buy up a further stake in fixed line carrier Neuf Cegetel.

SFR would buy a further 29 per cent stake in the fixed line operator from trading group Louis Dreyfus for around Eur2.07bn.

The French mobile operator already owns 40.5 per cent of Neuf Cegetel and the deal would position the combination of fixed and mobile companies as a stronger competitor to incumbent carrier France Telecom.

Parent Vivendi, said the transaction would represent an important step in SFR’s strategy by allowing the company to invest in fibre optics capacity; accelerating its fixed-line/mobile convergence strategy for businesses and individuals; and integrating a growing asset.

SFR is 56 per cent owned by Vivendi, with Vodafone holding the remaining 44 per cent.

Jean-Bernard Levy, chairman of Vivendi’s management board, said: “This investment is a very attractive opportunity for Vivendi to strengthen its position and development in one of its main business sectors. The planned agreement would make it possible to merge two companies with increasingly complementary and healthy businesses and would create value for Vivendi shareholders.”

SFR said it would finance this transaction through debt, notably with Vivendi granting a loan under market terms. To repay this loan, SFR has agreed to considerably reduce dividend payments that it would pay in the three next financial years.

Vivendi said it plans to raise funds of Eur1 to Eur2bn from its shareholders at the appropriate time.

French conglomerate Vivendi said Tuesday that it has called off discussions with Middle Eastern company Saudi Oger regarding an investment in Oger Telecom.

Vivendi did not give a reason for the breakdown in talks and only said it will continue to pursue an acquisition strategy “with the emphasis on value creation at an acceptable price, combined with clear prospects of control,” which suggests that the French company could not get favourable terms in the Saudi deal.

It was only last week that Vivendi executives were quoted as saying an Oger Telecom deal was close to being hammered out. Reports suggest the French firm was eyeing a stake of around 30 per cent in the Saudi operator, with a future plan to take full control.

But this seems the most likely point on which talks ground to a halt.

Had the deal gone ahead, Vivendi would have been able to tap into the Middle East prospects while also providing Oger with the opportunity to team up with a successful European operator – France’s SFR.

The move highlights how ugly the situation in Poland is becoming as both Vivendi and T-Mobile parent, Deutsche Telekom, fight to protect their respective interests in Polish mobileco Polska Telefonia Cyfrowa (PTC).

Named in the complaint are T-Mobile USA, T-Mobile Germany, Deutsche Telekom and Zygmunt Solorz-Zak, who controls Polish utility Elektrim, which is Vivendi’s joint venture partner for its investment in PTC, which the French firm claims is worth $2.5bn (£1.3bn).

In the allegations, Vivendi claims that T-Mobile colluded with Solorz-Zak in a pattern of racketeering activity over US wires to take over PTC.

DT and Vivendi have battled over ownership of PTC in court for several years, with each twist and turn of the proceedings creating further uncertainty over the future of the Polish firm.

Elektrim filed for bankruptcy in late September, following which, Deutsche Telekom announced that it had paid out Eur600m (£405m) in respect to a call option allowing it to buy Elektrim’s 48 per cent holding in PTC.

Deutsche Telekom owns 49 per cent of PTC, while Vivendi claims ownership of 51 per cent of PTC through a joint venture with Polish utility Elektrim.

But a Warsaw court last year ruled that Elektrim itself and not the joint venture is actually the holder of 48 per cent of the 51 per cent stake.

“Vivendi asks the court for a simple remedy: give us back our money or our PTC shares,” said Vivendi.