DUBAI Bahrain Telecommunications Co BTEL.BH (Batelco) has agreed to buy Cable & Wireless Communications' CWC.L assets in Monaco and some islands in a deal worth up to $1 billion, hoping growth overseas will offset falling revenue and market share at home.
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.
For CWC, the deal will allow it to cut debt and focus on a smaller geographical area.
State-controlled Batelco will buy CWC's Monaco and Islands division, which own stakes in telecom operators in 12 markets including the Maldives, Channel Islands and the Seychelles, providing fixed-line, mobile, broadband and television services.
It will also buy a 25-percent shareholding in Compagnie Monagesque de Communications (CMC), which holds CWC's 55 percent interest in Monaco Telecom. Monaco Telecom in turn holds a 36.8 percent stake in Roshan, a mobile phone operator in Afghanistan.
The total price for these transactions is $680 million, Batelco said on Monday, adding it had appointed BNP Paribas (BNPP.PA) and Citigroup (C.N) to help it raise up to $1 billion though a bond issue and a loan facility.
"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 licenses, and there aren't many available at the $1 billion ticket range."
Reuters reported in September the two companies were in talks regarding the Monaco and islands assets. BNP and Citi were advising Batelco on the deal, the sources said.
Batelco, which has a market value of $1.53 billion according to Reuters data, also entered into option agreements which will allow the Bahraini firm to buy a controlling interest in CWC's remaining 75-percent interest in CMC for an extra $345 million.
"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 6:35 a.m. EDT, after hitting a two-week high, while Batelco ended unchanged in Bahrain.
In a separate 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's home revenue may be in decline - it fell 12 percent in the nine months to September 30, accounting for 60 percent of group earnings - but it is buying a CWC division facing similar difficulties.
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 amortization (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.
"The key question is whether this deal will add incremental value for shareholders," added the analyst. "These new units may offer data revenue growth, but is the net earnings growing, and if yes, by how much?"
(Additional reporting by Kate Holton and Paul Sandle in London; Editing by Mark Potter)