Batelco deal good for CWC: Analyst
Dubai, December 3, 2012
Bahrain-based Batelco's move to buy Cable & Wireless Communications' (CWC) assets in Monaco and some islands in a deal worth up to $1 billion will allow CWC to cut debt and focus on a smaller geographical area.
"We believe this is a good deal for CWC," Espírito Santo Investment Bank wrote in a research note, claiming it provided a 40 percent premium to current valuations.
"A deal like this has been perceived as difficult to execute due to the geographic spread of the assets. We are now more confident in management's ability to execute deals at good multiples."
CWC's shares were up 4.9 percent at 1135 GMT, after hitting a two-week high, while Batelco ended unchanged in Bahrain.
In a statement, CWC said the Batelco deal would cut its debt to $937 million. The operator is also in talks to sell a majority stake in Macau's largest telecom group.
"Our strategy to expand in Central America and the Caribbean is predicated on really moving out of all aspect of the eastern part of our business, so Monaco and the Islands and Macau," said CWC finance director Tim Pennington.
Batelco, which has little debt, has reported falling profit in nine of the past 10 quarters and this slump has led it to expand abroad, although its moves had been limited to Middle Eastern countries like Jordan, Yemen, Saudi Arabia and Kuwait.
"Batelco's revenues and earnings are going down and the company is looking at cost reduction and restructuring to boost its margins," said a Middle East telecom analyst.
"Batelco wanted to buy brownfield operations (established businesses), it didn't want new licences, and there aren't many available at the $1 billion ticket range."
Batelco's home revenue may be in decline - it fell 12 percent in the nine months to Sept 30, accounting for 60 percent of group earnings - but it is buying a CWC division facing similar difficulties, the analyst said.
Monaco and Islands had revenue of $586 million in the year ending March 31, down from $605 million a year earlier. Earnings before interest, tax, depreciation and amortisation (EBITDA) fell over the same period to $186 million from $207 million.
CWC's effective stake in its Monaco and Islands division is about 65 percent, the Middle East telecoms analyst said, meaning Batelco will be working with local shareholders in the various units. - Reuters