Fortune favours the brave

Two major sets of deal talks reached very different conclusions
M&A deals may be inherantly risky but are vital for growth.
M&A deals may be inherantly risky but are vital for growth.


After many months of wrangling, two sets of deal talks that had the potential to re-shape the region's telecoms sector ended with very different outcomes this month.

In short, Etisalat terminated its plan to acquire Zain Group, while Russian telco VimpelCom finally gained shareholder approval - albeit by a slim majority - to acquire the telecom assets of Egyptian entrepreneur, Naguib Sawiris.

Etisalat said it decided against the acquisition owing to the "current political unrest" in the region and disagreement among Zain's shareholders.

In terms of geographical fit, the two companies appeared to be a near-perfect match. The deal, had it progressed, would certainly have created a true regional powerhouse, with a footprint in all of the Middle East's major markets.

But a merger between the two companies would also have inevitably revealed some areas of conflict, which would have led to some tough challenges such as integrating the two companies' management teams, processes and technology.

These integration procedures were no doubt factored into Etisalat's due diligence process, and were probably an important factor in its decision to cancel the deal.

Etisalat's directors will most likely watch with interest as VimpelCom sets about finalising its plan to acquire Wind Telecom, the company which controls the telecom assets of Egyptian entrepreneur Naguib Sawiris.

The deal was plagued by shareholder related problems, with one of VimpelCom's major shareholders, Telenor, against the deal from an early stage.

Under the terms of the deal, VimpelCom is expected to pay $1.5 billion to Wind Telecom, which will receive a 20% stake in VimpelCom, giving the combined deal a value of some $6.6 billion, excluding debt.

Late last year, the Financial Times reported that Wind and Orascom Telecom had combined debts of $15.4 billion, while VimpelCom expects to raise up to $2.5 billion in new debt to help fund the deal.

These debts will do little to aid the post-deal integration process, but any niggling doubts that the directors of VimpelCom have about the deal will probably be countered by the footprint of the combined operation. Wind and Orascom Telecom have a presence in some 11 countries, with a combined population of 506 million, while VimpelCom is present in 10 counties with a total population of 345 million.

While the geographic fit between VimpelCom and Wind might not offer the same kind of strategic fit as Zain and Etisalat, there are some similarities.

Indeed both Orascom Telecom and VimpelCom focus primarily on emerging markets, and have also shown a willingness to enter some difficult markets that would deter less audacious operators.

Orascom is present in countries including Bangladesh, Zimbabwe and North Korea, while VimpelCom is present in countries in the CIS, Caucasus and Asia, including Kyrgyzstan, Vietnam and Cambodia.

VimpelCom may have chosen a riskier path than Etisalat by pushing ahead with a deal that will create the world's fifth biggest mobile operator by subscriber numbers. But as he sets about completing the deal, Alexander Izosimov,

VimpelCom's CEO, might take comfort in a saying first coined in Rome, which will soon be one of his firm's newest markets: ‘Fortune favours the brave'.

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