Etisalat's $11.7bn offer for Zain is justifiable
Etisalat's bid of 1.7 dinars a share or $11.7 billion offer for a 46 per cent piece of Zain is high compared to the multiples in recent telecom M&As, but remains justifiable due to Zain's "well-established presence" in most of its markets under operation, Rasmala said in a note.
And despite the high price, etisalat will not face difficulties in financing this offer, thanks to its "very strong" balance sheet and stands on a net cash position of about Dh6bn ($1.6bn) at the end of June 2010, the UAE-based investment bank said.
The proposed value translates into 2010 and 2011 EV/EBITDA multiples of 16.7x and 11.6x, respectively, based on Zawya's EBITDA estimates, higher than the average of 9x EV/EBITDA for the most recently announced telecoms M&A transactions, completed or pending.
"However, given that both greenfield and brownfield operations are very scarce, and considering that Zain has a well-established presence in most of its markets under operation, we believe that a high price can be justified, particularly as the combination of assets under negotiation are all within one geographical umbrella, that of the Mena region," Shrouk Diab, analyst at Rasmala, said.
Rasmala forecasts Etisalat's EBITDA for 2010 at Dh20.5bn and believes that the company should be able to raise external financing up to two or three times its EBITDA.
"With its strong cash balance and potentially strong ability to raise debt, this should enable Etisalat to comfortably finance this deal and potentially other deals, through a combination of both equity and debt," Diab said.
Etisalat already has a 27 per cent stake in the Etihad Etisalat (Mobily) operation, which had a 40 per cent share by number of subscribers of the Saudi market at year- end 2009. Any consolidation between Mobily and Zain Saudi seems unlikely as it could potentially violate CITC, Saudi's telecom regulator, competitive rules and regulations. Meanwhile, Qatar Telecom and Batelco have both expressed interest in acquiring the operations of Zain KSA.