Emirates Telecommunications Corporation (Etisalat) has reportedly hired financial advis e rs to guide it through a proposed US$8bn acquisition of Maroc Telecom . With Qatar Telecom (Qtel) and SK Telecom also believed to be preparing similarly ambitious take-over plans, the sale of Vivendi Universal 's 53% stake in the Moroccan incumbent has stepped up a gear. Robust growth in its home market and ample scope for development opportunities in its Sub-Saharan African operations makes Maroc Telecom an attractive investment, but also brings considerable risks to unwary investors according to BMI analysts.
Local reports claim Etisalat has selected BNP Paribas and Morocco's Attijariwafa Bank to advise it on the purchase of Maroc Telecom , while Qtel is working with JP Morgan Chase on its offer. SK Telecom is said to have hired Citigroup , Credit Suisse and Societe Generale . The banks would provide finance as well as advice needed to complete any deals. None of the parties have confirmed or denied reports concerning their plans for Maroc Telecom, unsurprising if they are still in the process of conducting due diligence.
|Looking To Boost International Revenues|
|Etisalat International Business Metrics|
Although Maroc Telecom's domestic mobile subscriber base grew by 4.3% in 2012 to 17.86 mn and its African mobile user base grew by 30% to 13.1mn, revenue from its domestic mobile-related activities was hit by intense price competition, lower interconnection revenues and high handset subsidies while several of its African markets were also subjected to increased competition during the year. The company has fixed-line and mobile subsidiaries in Gabon, Mauritania, Burkina Faso and Mali, but it is the mobile divisions that are growing fastest and these will be of interest to regional players such as Etisalat, which is already active in several African markets through its Moov subsidiary.
In this respect, we believe Maroc Telecom has the closest fit with Etisalat in terms of regional experience and strategy , although Qtel does have some experience in Africa. Like Qtel and Maroc Telecom itself, Etisalat is encountering difficulties expanding its customer base and revenue stream locally and must look overseas for new growth opportunities. The company has successfully leveraged its ability to provide converged fixed-mobile services in its home market and would likely seek to replicate that strategy elsewhere, as it has done in Saudi Arabia, with Morocco being the obvious starting point.
Approximately AED8.25bn was generated by Etisalat's international businesses in Q212, up by around 4% year-on-year (y-o-y), but only marginally improved on the AEB8.20bn in Q112. More recent data were not available for analysis at the time of writing. Adding Maroc Telecom to the mix would significantly boost international income, but BMI believes Etisalat would have to invest heavily to ensure the newly-added businesses continue to grow amid increasingly challenging industry and macroeconomic conditions.
The Moroccan market is fairly mature, with the mobile sector primarily being driven by migration to 3G (and, in the near future, 4G) services. The fixed-line market is beginning to shrink and this may undermine investments in fixed broadband services, which relies heavily on ageing PSTN infrastructure. Tougher regulatory conditions are also weighing on profit generation. Meanwhile, although the mobile user bases have increased in Gabon (up by 46.1%), Mauritania (up by 15.2%), Burkina Faso (up by 30%) and Mali (up by 38%), it is worth noting that these markets are periodically subject to political and civil disturbances, with Mali currently experiencing considerable turmoil.
Etisalat is no stranger to working in volatile markets and will likely factor the long-term downside risks into its offer for Ma r oc Telecom, but SK Telecom has less experience of working in such environments and we would be concerned if it were to win control of the business.