Transformative deal on the way for Batelco?
The logic for Batelco, however, is harder to understand. It will almost double the size of its asset base, writes Una Galani.
December 4, 2012 9:25 by Reuters
Cable and Wireless Communications is extracting a royal premium from Batelco. Bahrain’s state-controlled telecom operator has agreed to pay $1 billion, or roughly one third more than the market expected, for the UK-listed firm’s Monaco and Island unit. If the all-cash deal goes through, it will be a transformative move for both the buyer and the seller.
The deal is structured in two parts. Batelco, which already has assets in Jordan and Yemen, will pay $680 million upfront for the fixed-line, mobile, and television business spanning 12 markets from theChannel Islands to Afghanistan. That includes a 25 percent stake in the holding firm which owns CWC’s 55 percent interest in Monaco. Through options valid for one year, Batelco will also be able to then take control of the Monaco asset for $345 million pending approval of the local government.
All in, the deal value works out at 6.7 times trailing earnings before interest tax depreciation and amortization. That’s pretty rich. While the Monaco and Islands unit is stable and cash generative, almost 80 percent of the unit’s earnings come from three relatively mature markets: Monaco, the Maldives, and Guernsey. CWC itself and its wider peer group trade on a trailing EBITDA multiple of around 4 times. News of the deal, meanwhile, pushed CWC shares up 6 percent.
The sale is good for CWC. Though trading conditions remain challenging, management is finally delivering on expectations. Once the UK firm offloads its Macau unit, it will be firmly focused on Latin America - mainly Panama - and the Caribbean. Ahead of any further investment the firm’s net debt to EBITDA will also fall from around 2.8 times to around 1.8 times, within its target range.
The logic for Batelco, however, is harder to understand. It will almost double the size of its asset base. That might generate some procurement synergies and help it compete with rivals, backed by larger operators, in its home market. There might also be some financing benefits. But opportunities for regional expansion are limited – especially for a small operator like Batelco. In the end, the disparate Monaco and Island business is an odd fit for any telecoms operator – let alone a small Middle Eastern telecoms one.