March 26 (Bloomberg) -- Safaricom Ltd., East Africa’s biggest mobile-phone company, said it may abandon its bid to acquire assets owned by Essar Telecom Kenya Ltd. in the absence of regulatory approval.
A month after the Nairobi-based company requested clearance from the Communications Authority of Kenya to make the acquisition, the regulator has yet to acknowledge receipt of the application, Corporate Affairs Director Nzioka Waita said in an interview in the city. CAK Director-General Francis Wangusi declined to comment when Bloomberg called him yesterday and didn’t immediately respond to e-mailed questions.
“For all concerned, this transaction was very time-bound,” Waita said March 24. “We are giving very serious consideration to pulling out for the simple reason that the lack of regulatory certainty puts us in a place where the key fundamentals of the transaction have changed.”
Safaricom, 40 percent owned by Vodafone Plc, and rival Airtel Kenya Ltd. may spend “in the hundreds of millions of dollars” acquiring Essar, which operates Kenya’s third-biggest mobile company, according to Waita. Safaricom plans to buy Essar’s network base stations and transmission equipment. The regulator has demanded that Safaricom improve its network quality before being granted a new license. Airtel, the second-biggest operator, is set to take over Essar’s 2.75 million subscribers and licenses.
Essar Telecom, which is being sold after accumulating “substantial” losses over the past six years, has also yet to hear from the regulator, Chief Executive Officer Madhur Taneja said in a March 24 interview in Nairobi.
“We are yet to see any formal response coming from the Communications Authority of Kenya to be able to understand how they are looking at this transaction,” Taneja said. “We also understand that the application has not been put to the board.”
Essar, Airtel and Safaricom currently have a memorandum of understanding, though they have yet to sign a legally binding agreement, Taneja said.
The delay in considering the deal by the authority may become protracted because its board’s term of office ends on April 2, Waita said. The process of interviewing and reconstituting the board has only “just been kicked off” by the Ministry of Information and Communications Technology, he said.
“The delay is surely disturbing,” Essar’s Taneja said. “Time is of the essence in all such transactions because it sends anxiety to every stakeholder.”
Essar Telecom is unaware of any objections to the transaction, which has been under discussion for seven months, he said.
Before agreeing to a deal with Safaricom and Airtel, Essar approached Orange SA, Emirates Telecommunications Corp., MTN Group Ltd. and a Vietnamese telecommunications company over the past 18 months about a possible acquisition, Taneja said.
Airtel Kenya, owned by Bharti Airtel Ltd., India’s largest mobile operator, declined to comment on the delay beyond a March 2 statement outlining its plans to take over Essar’s subscribers, Airtel spokesman Michael Okwiri said in an e-mail yesterday. Adding those clients will boost Airtel’s Kenyan market share to 26.4 percent from 17.6 percent, according to Bloomberg Industries.
Airtel will also bring in more than 100 of Essar’s distributors, and more than 5,000 mobile-money agents will become part of its network, Taneja said. At least 185 of Essar Telecom’s 220 employees will be recruited by both Airtel and Safaricom after being handed severance packages, he said.
“This is the only commercially viable option,” Taneja said. “It will be extremely unfortunate if this transaction falls through and it will be the regulatory bodies which will then have to explain to the people who may get impacted.”
Safaricom has a 67 percent share of Kenya’s total mobile-phone market, while it also controls 79 percent of voice traffic and 96 percent of all mobile text messages, according to data compiled by Bloomberg Industries. The company’s shares have advanced 14 percent this year to 12.40 shillings.
The stock may gain further if the deal goes ahead because it will “give them an opportunity to increase capacity on their network,” Faith Atiti, a research analyst at CBA Capital Ltd. in Nairobi, said today. Shareholders could also expect a higher dividend payout after the acquisition, she said.
Essar Telecom, a unit of Mumbai-based Essar Group, began operations in Kenya in December 2008 after purchasing Econet Wireless Kenya Ltd. The company’s market share fell to 8.3 percent in September 2013 from 9.6 percent a year earlier, according to the regulator.
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