Egyptian telecom mogul Naguib Sawiris won a bid to buy Italy's third-biggest mobile phone operator. Sherine Abdel-Razek investigates what this means for his company Italy's biggest communication group Enel last week approved a bid offered by Weather Investments to buy 63 per cent of its wholly owned telecommunications unit Wind Telecomunicazioni SpA. Weather Investments is a special vehicle set up by Egyptian billionaire Naguib Sawiris together with the American buyout specialist Wilbur Ross and the French investor Philippe Nguyen to negotiate the buyout of Wind. Sawiris leads the group in his personal capacity as a representative of the Sawiris family, not as the chairman of Orascom Telecom (OT), which operates wireless networks in several Middle Eastern and African emerging markets. Enel founded Wind in 1997 with France Telecom SA and Deutsche Telekom AG, and later bought out both partners. Last year, Wind's loss before interest and tax narrowed to 456 million euros from 840 million euros in 2003. With 31.6 million customers, Wind has twice the subscriber base of OT. It is the third-largest Italian mobile phone company and a major fixed phone line supplier. Enel, which will maintain a 37 per cent stake in Wind, said it is divesting the latter to concentrate on energy-related activities. Sawiris and his family will pay part of their share in the deal through transferring 50 per cent plus one share -- a golden share ensuring management control -- in OT to Weather Investments. This is equivalent to LE27.5 billion according to OT's market capitalisation at the end of last trading week. Weather has an option to buy the rest of Wind in the first half of 2006. The deal will lead to a change in OT's shareholders structure entitling a decline in the Sawiris family's direct holdings to seven per cent. Around 43 per cent of OT's equity is traded as GDRs and shares, and the company is listed in both the Cairo and London stock exchanges. How is the deal going to affect OT shares? Positively, say market observers as well as Sawiris himself. "This transaction is a milestone in the telecommunications sector," Sawiris said in a statement quoted by the financial news service Bloomberg. "Wind's untapped potential and our partnership with Enel will create value through operating efficiencies, economies of scale and sharing of best practices, for the benefit of both Wind and Orascom Telecom Holding." The deal which is valued at 12.1 billion euros will be mostly financed by loans and is believed to be the highest leveraged buyout in Europe in the last five years. One of the planned loans will be backed by OT's shares now owned by Weather Investments. "Acquiring a loan against OT shares comes in favour of OT shareholders," said Hussein Abdel-Halim, head of research at the local Sigma Securities. "They will benefit as Sawiris will always be keen to maintain the share price at the same level as when he acquired the loan," he added. Benefiting from extending activities to new markets is another advantage that analysts believe OT would get out of the deal. Nashwa Saleh, head of research at HC securities points out to another benefit. "Weather Investments plans to save costs through joint activities and expand their market share in Europe, the Mediterranean area and other countries in the Middle East, Africa and Asia; and this could have an impact on OT's operations and more importantly financing and capital allocation decisions. " However, Saleh sees the other side of the coin as well. "There is a threat that Wind's high gearing levels would eat into OT's generated cash flows, thereby diverting resources to Wind," she acknowledged. Furthermore the management of the conglomerates operations and financing will be a much more challenging task given the size of the combined operations and geographic diversity, with various implications on market risk management. Sawiris seems to be more optimistic as he plans to merge Wind with OT in several years. Also, he is seeking a greater presence in Europe. "We would like to do one more acquisition in Europe," he said in Jordan, where he was attending the World Economic Forum meeting. "I need to have another foot in Europe so that when people look at my portfolio, they will see a good weight in Europe, something in the Middle East and Asia, that the portfolio is somehow balanced in geography, in risk and in quality of clients." OT shares benefited from the deal which GDRS traded in London valued at $58 compared to the closing price of $42 in the previous trading session. Shares closed at LE525, or eight per cent higher, on Monday's transactions.
