Millicom to Sell 88.86% Stake in Paktel to China Mobile Parent

Millicom, based in Luxembourg, said in a statement that the transaction implies an enterprise valuation for Paktel of US$460 million. The total cash consideration payable to Millicom as a result of the transaction, including the repayment of intercompany debt, is approximately US$284 million. Completion of the transaction, which is expected to occur in late February, is subject to certain regulatory approvals and procedures, it added.

Outlook and Implications

• Millicom to Exit from Pakistan: In November, Millicom said it was planning an exit from the Pakistani market by selling or closing its telecoms business in the country. The group said that it had been considering significant investments to build market share in Pakistan, but the return on those investments had been overshadowed by challenging business conditions in the the country’s mobile market and frequency interference issues. It added that its mobile unit in the country, Paktel, had gained additional space in the 1800 MHz spectrum, but that the grant was not permanent. The authorities had also refused a request to delay payment of a US$29 million licence instalment. As of September 2006, Paktel had about 1.5 million subscribers. Facing increased competition in the mobile market, Paktel's subscriber growth has been lower than the industry average rate, with its market share falling from 7% in 2005 to 3% in 2006. The market leaders—Mobilink and Ufone—have continued to grow their subscriber bases rapidly and had respectively achieved a subscriber base of 17 and 7 million by June 2006. Two new operators—Telenor and Warid—which launched their services in March and May of 2005, respectively, have also performed well. Telenor added 2.7 million and Warid acquired 4.4 million subscribers during the year ending June 2006.

• ChinaMobile to Grow International Presence: There was intense speculation last year that China Mobile would acquire Millicom, but such speculation ended after the latter announced that it had terminated all discussions on a possible sale with a potential buyer (see World: 4 July 2006: Millicom Completes Strategic Review with No Sale). However, Millicom's strong performance and the potential for organic growth in its 16-market footprint would not make for a cheap deal to purchase all its assets. Acquiring its operations in selected markets could prove a more feasible option for China Mobile. However, although significant organic growth potential still exists in Pakistan's mobile market (where mobile penetration increased tremendously from 8.3% in 2005 to 22.2% in 2006), the US$284-milion deal does not appear cheap, given that Paktel's current business scale is minimal and the purchase would not give China Mobile a significant market presence in the country immediately. Nevertheless, China's largest mobile operator is apparently keen to exploit its experience of developing operations in low-income markets, in order to expand its global presence and generate new growth engines. The operator is likely in the future to pursue more investment opportunities in emerging markets, such as in Asia, Africa and Latin America.