Global Insight Perspective | |
Significance | The Orascom CEO has added Greece to his Mediterranean footprint of Algeria, Egypt, Tunisia, and Italy. |
Implications | For Sawiris, the acquisition is a key milestone in his quest to create a sprawling pan-Mediterranean mobile empire. |
Outlook | The sale helps cement the belief that private equity players are only interested in a fast turnaround in any venture they embark on. In the light of this, NTC in Denmark, Eircom in Ireland, the now-consolidated Dutch cable companies, and others may soon come on the market. |
Private equity players Apax and Texas Pacific Group (TPG) have finally sold off the Greek mobile operator, TIM Hellas, and its mobile operator subsidiary, Q-Telecom, for 3.4 billion euro (US$4.4 billion), netting themselves a tidy 1.7-billion-euro profit after just 20 months in the business. The sale price, which includes a 2.9-billion-euro provision for the net debt of the group, fell short of the initial 4-billion-euro asking price, which temporarily threatened to truncate a possible sale. TIM Hellas and Q-Telecom have about 3.9 million customers, representing a market share of about 28% (see Greece: 7 February 2007: TPG, Apax Dispose of TIM Hellas Stake, 8 December 2006: Expected Cancellation of TIM Hellas Sale Raises Concern Over Private Equity Investment, and 17 August 2006: Private-Equity Firms Set to Sell Greek Mobile Operators).
The eventual buyer, Weather Investments, already owns another major European/Mediterranean operator, the Italian telecoms operator, Wind. Weather Investment is 97% controlled by Egypt's Sawiris family, the owners of Orascom Telecom. Weather Investment owns 100% of Wind and has a 50% plus one share of Orascom Telecom. Although Orascom is not officially involved in the deal, the position of Naguib Sawiris at the head of both Orascom and Weather blurs the boundaries between the two companies. Orascom remained an outsider in the initial bidding, with Etisalat, the U.A.E. telecoms group, regarded as the leading frontrunner. By the time Etisalat and other frontrunners—Turkey's Turkcell and the U.S. buy-out group, Providence—backed out of the deal in December 2006, it emerged that bids had came in short by about 15-20%.Sawiris had spoken of Orascom's interest in entering the Greek mobile market as part of its plans to create a sprawling Mediterranean mobile empire (see Greece: 1 February 2006: TIM Hellas Seals Q-Telecom Buy, 17 October 2005: Infoquest Accepts TPG/Apax Bid for Q-Telecom, and 4 April 2005: TIM Hellas Selling STET Hellas Stake to Apax, Texas Pacific).
Outlook and Implications
Sawiris's Burgeoning Footprint: The takeover of TIM Hellas is the perfect tonic to nurture Sawiris's dream of building a sprawling Mediterranean mobile empire. The company vision was established in Egypt when the Sawiris family business spread its wings into the telecoms sector. Since then, the company has established operations in Tunisia, Algeria, Pakistan, Iraq, Bangladesh, Zimbabwe, and, finally, Italy. Having established itself as a key player in the North African market, the acquisition of Wind—through Weather—was the launch pad to cover the European segment for the group's pan-Mediterranean dream. A running theme since the May 2005 takeover of Wind has been the eventual merger of Wind and Orascom Telecom. While Weather publicly claims to be running a separate strategy to Orascom, the latter has not been deterred from seeking further opportunities for growth within the region, especially within the large immigrant communities of North African origin in southern Europe. France and Spain are the next obvious targets. However, with the dearth of potential acquisition targets, worsened by a latent nationalistic mentality, plus added security concerns, a means by which companies may enter the Spanish and French markets may prove tough to locate. An Orascom MVNO in France or Spain, catering to the needs of the immigrant community, may not be out of place (see Greece: 7 December 2005: Orascom Chief Eyes TIM Hellas Bid).
Private Equity's Quick Cash-in: The successful sale of TIM Hellas and Q-Telecom has helped cement the impression that private equity players are not there for the long haul. The stage is set for similar quick turnarounds across Europe. Already, NTC, the consortium of private equity players that bought Denmark's TDC, has instituted far-reaching changes to TDC's strategy, effectively streamlining the company and priming it for sale. Babcock & Brown, which bought Ireland’s eircom in 2006, have also embarked on stringent cost cutting, including selling off eircom's new head office building for 190 million euro in a sale and leaseback deal. The now-consolidated Dutch cable industry is also set for a major overhaul, with the new private equity owners seeking synergies from merging the different companies (see Europe: 5 February 2007: TDC Plans Disposals of Non-Scandinavian Units and Ireland: 11 December 2006: New Owners Mull Sale of Eircom's Mast Sites).