Breakingviews: Target shortage feeds desperate Mideast telco M&A

DUBAI Tue Mar 26, 2013 3:58pm IST

A man walks past a logo of Reliance Communication before the Annual General Meeting in Mumbai September 22, 2009. REUTERS/Arko Datta/Files

A man walks past a logo of Reliance Communication before the Annual General Meeting in Mumbai September 22, 2009.

Credit: Reuters/Arko Datta/Files

Related Topics

Stocks

   

DUBAI (Reuters Breakingviews) - A scarcity of takeover targets is feeding a desperate scramble in Middle East telecoms M&A. Bahrain's incumbent operator Batelco BTEL.BH is eyeing a stake in the enterprise unit of Reliance Communications(RLCM.NS). It comes just months after agreeing a deal worth $1 billion to buy assets spanning 12 markets, including Monaco and the Channel Islands, from Cable & Wireless. Batelco's pick-and-mix takeovers are symptomatic of a market where too many big telcos are chasing too few assets.

Batelco is in search of stable cash flows amid fierce competition in its home market. Bahrain accounts for 60 percent of revenue but profit there fell by almost one-third in 2012. Cash flow is weakening and the cash dividend payout ratio has fallen from 75 to 60 percent in just two years.

The problem is that Batelco, with a market value of just $1.6 billion, is a minnow in the Middle East. It lacks the financial firepower to compete for the few assets that do come up for grabs, like Vivendi's 53 percent stake in Maroc Telecom worth around $6 billion. Larger rivals are also consolidating and looking for growth opportunities. Saudi Telecom Co. 7010.SE, Ooredoo (formerly Qatar Telecom) and UAE operator Etisalat already have a large regional footprint and dominate with a combined market value of $47 billion.

It is hard for the smaller operators to be consolidators rather than targets. But many enjoy protection from government shareholdings. Oman did try to find a strategic partner for tiny Omantel in 2008 but the government aborted the deal. Any further reduction of state shareholdings now looks unlikely in the medium term given the strategic nature of telecoms and hyper-sensitivity of Gulf monarchies post-Arab spring.

Batelco's M&A strategy may yet prove an effective response to its operational and strategic challenges. But it is also taking it into areas where it has limited experience, for example in managing the deep-sea cables that come with the Reliance unit. With sensible deals hard to do, small Middle Eastern telcos might just have to tough things out.

CONTEXT NEWS

- Bahrain Telecommunications Co (Batelco) said on March 14 it is in talks with Reliance Communications to buy a stake in the Indian operator's enterprise business unit.

- Separately, Peter Kaliaropoulos, Batelco Group Chief Executive Officer for Strategic Assignments, told Reuters the talks were about buying a stake in Reliance Globalcom.

- The Times of India reported that the Bahraini operator had valued Reliance Globalcom at $1.3 billion. Reliance would retain a minority stake should the deal be completed, the report added.

- In December, Batelco agreed to buy Cable & Wireless Communications' Monaco and Islands division, which owns stakes in telecom operators in 12 markets. That deal was worth up to $1 billion.

- Batelco already owns Jordanian telecoms firm Umniah, 27 percent of Yemeni mobile operator Sabafon and minority stakes in Internet providers in Kuwait and Saudi Arabia, as well as being active in Egypt.

(Editing by Chris Hughes and David Evans)

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Consumer Confidence Index

REUTERS SHOWCASE

Deal Talk

Deal Talk

Exclusive - Lupin, U.S. firms weigh bids for GSK's mature drugs: sources  Full Article 

Classifying Banks

Classifying Banks

RBI to start announcing too-big-to-fail banks in Aug 2015  Full Article 

Corruption Probe

Corruption Probe

India to probe corruption in healthcare after TV sting.  Full Article 

Food Scandal

Food Scandal

Starbucks, Burger King dragged in as China food scandal spreads.  Full Article 

Bigger iPhones

Bigger iPhones

Apple asks suppliers to produce up to 80 mln large-screen iPhones - WSJ.  Full Article 

Bali Trade Deal

Bali Trade Deal

India keeps world guessing in countdown to landmark trade pact deadline.  Full Article 

Bangalore Sex Abuse

Bangalore Sex Abuse

Modi's BJP puts political twist on local sex abuse case   Full Article 

Yahoo to buy Flurry

Yahoo to buy Flurry

Yahoo to buy analytics startup Flurry to bolster mobile ad business.  Full Article 

Wholesale Biz

Wholesale Biz

Wal-Mart adds $102.9 million in Indian wholesale business in June.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage