Etisalat buys controlling stake in Maroc Telecom for €4.2bn

January 2014 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

The Emirates Telecommunications Corporation, trading as Etisalat, announced in November that subject to regulatory approval it has agreed to buy a 53 percent stake in Maroc Telecom for €4.2bn in cash from multinational media and telecommunications group Vivendi SA.

According to a statement announcing the deal Etisalat will pay Vivendi €3.9bn for the stake, plus a further €300m in dividends from Maroc Telecom. Both companies anticipate that the deal will be completed in early 2014. The price values Maroc at 6.2 times the company’s earnings before interest, taxes, depreciation and amortisation (EBITDA), compared with a median of 9.5 times among its peers.

The deal is subject to various closing conditions, including securing antitrust and regulatory approval from Morocco and other relevant jurisdictions, as well as the execution of a shareholders’ agreement with the Moroccan state, which owns a 30 percent share in Maroc. Moroccan regulations also dictate that Etisalat must make a takeover offer to Maroc’s other shareholders, which could ultimately result in Etisalat having to further increase its stake in the company.

Abu Dhabi based Etisalat reached a final agreement with Vivendi for the stake in Maroc as the telecoms company continues to expand aggressively overseas. Indeed, via the acquisition of Maroc, Etisalat, the largest telecoms firm in the Gulf, has cemented its position in the highly lucrative Moroccan market. Maroc Telecom is the largest phone company in Morocco, a region in which the firm generates around 75 percent of its revenue. Morocco has proven to be an area of particular importance for Eitsalat as the country boasts one of Africa’s most developed telecom markets. Morocco has around 120 percent mobile penetration, three fixed line and mobile telephone providers as well as some of the lowest broadband prices on the continent.

Maroc’s operations in West Africa are also considerable. In recent years the region has been an area of real growth for the company. The first three quarters of 2013 saw Maroc’s customer base in West Africa grow between 11 percent and 33 percent. By comparison, Etisalat’s African operations registered a net loss in the third quarter of 2013 amid falling subscriber numbers. The deal for Maroc also provides Etisalat with an increased presence in Mauritania, Burkina Faso and Mali in addition to the African countries where it is already present.

The deal brings to a close months of negotiation with indebted French company Vivendi, which is in the process of divesting a number of its assets. The French conglomerate has been attempting to narrows its portfolio of assets for some time. Vivendi intends to greatly reduce its operations, and refocus its attentions on the music and pay television business, which are areas which the company feels will help deliver stronger growth potential in the future. In addition to the sale of the Maroc stake, in June the company also sold the majority of its stake in US videogame publishing house Activision Blizzard, for $8.2bn.

Telecommunications companies in the Gulf Arab region have been looking for opportunities to expand abroad as domestic markets become increasingly saturated. Qatar’s Ooredoo, formerly known as Qatar Telecom, was also interested in acquiring a stake in Maroc, however the Qatari group withdrew its interest in the company as a result of what it called a ‘lengthy’ sale process. Since 2012, Ooredoo has spent in the region of $4bn acquiring stakes in Kuwait’s National Mobile Telecommunications Company, Iraqi mobile operator Asiacell Telecom Company and Tunisiana SA.

The acquisition, once completed, will be Etisalat’s biggest deal in terms of buying into an existing operation. The Maroc acquisition also represents something of a step change for Etisalat. In recent years the company has turned away from expensive foreign acquisitions. Between 2004 and 2009 the company was more interesting in pursuing international companies, spending in the region of $12.6bn on overseas acquisitions.

Since Etisalat’s monopoly over the UAE’s telecommunications sector ended in 2007 the company has lost a significant portion of its market share to Emirates Integrated Telecommunications Company, also known as Du. Etisalat’s third quarter income fell 18 percent to around $498m.

Richard Summerfield