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Case
study Prof. Ian Giddy, New York University The Alternatives
EBITDA increased by 59% to U.S. $200 million (2003: U.S. $126 million) as a result of strong growth in revenues and cost controls despite the Group's investment in the Celtel brand. The Group had net finance costs of U.S. $48 million (2003: U.S. $26 million). The increase was mainly due to the costs of refinancing.  "As of December 2004, mobile penetration was less than 5% in 10 of
the 13 countries in which Celtel operates (see map). Therefore, the Group
believes that there is significant opportunity for customer and revenue
growth in sub-Saharan Africa. Sub Sahara Africa is currently the world's fastest growing region
for mobile telecommunications," said the company. "The Group aims to position Celtel as a pan-African brand known for
quality of service, network coverage and customer care. Through a
strong brand with a pan-African reach, Celtel aims to increase customer
loyalty, expand its customer base and offer differentiated services.""The demand for quality mobile telecommunications services in Africa is reflected in the strong organic growth of the Group's customer base. During the last quarter of 2004 Celtel was signing up on average 50,000 new customers per week, with significant numbers in particular coming from the Democratic Republic of Congo and Kenya." Africa had a population of 850 million with most growth coming from South Africa, Morocco, Nigeria and Egypt. There was plenty of potential, analysts said. Mobile subscriptions across Africa rose 47 percent to 76.5 million in 2004, according to London-based research firm Informa Telecoms & Media. The Offer On March 29, 2005 Celtel received a $3.4bn all-cash offer from Kuwait's Mobile Telecommunications Company (MTC).  MTC, which had a market capitalisation of around $7 bn, had more than 20 years of experience in the cellular business. It.had
operations in Kuwait, Jordan, Lebanon, Iraq and Bahrain and also had a
strategic partnership with Vodafone Group PLC. It reportedly had 3.4m
customers in the Middle East and aimed to have 15m users
by 2011. Arguing that Celtel shareholders should be happy with the offer, MTC chairman Saad al Barrak said "Together, MTC and Celtel will leverage the strong synergies, shared
cultural values and heritage which exist between the Arab World and
Sub-Saharan Africa."If accepted, offer would give even the most recent investors a return of at least 250% as the most that investors paid was $20 a share and MTC was offering $56. Shareholders included Actis, a South African private equity investor, Old Mutual, and African Merchant Bank. Actis backed Celtel as a start-up and contributed $77m in three rounds of funding. Its 9.3% made it the largest holder after Celtel chairman Mo Ibrahim. Other shareholders included the Africa Infrastructure Fund and a number of US venture capital firms. The cash from MTC would take out existing stakeholders but would not add any working capital or pay off loans Celtel raised to fund expansion. To implement its growth strategy, MTC would have to invest a substantial amount in mobile phone infrastructure in places like Nigeria. Celtel had a reputation for being well run: it was profitable and had a presence in 13 countries, but money was always tight and Celtel's plans for African dominance had been relatively easy to dismiss. Its management skills and sound business practices had seen it repeatedly raise debt and equity funding to expand, but a buy-in from MTC would ease that pressure. If MTC succeeded in its buyout, some felt this could provide Celtel with the capital for further African expansion. The Meeting Some of Celtel's shareholders -- notably the venture capital firm Actis -- were keen to accept MTC's offer. However the Board wanted to be sure this was the best possible price that could be obtained for all shareholders. A hasty meeting was arranged in Amsterdam with the company's advisors, ABN AMRO Bank. Hendrik Meulenbroek, an experienced M&A specialist at the bank, opened the meeting. "I've assembled some rough figures based on research I've been doing on Celtel and MTC," he said. "Let's look at the numbers. I think that once we've analyzed them, we should be able to make a decision about whether it makes sense to accept MTC's offer." Questions 1.
From the point of view of Celtel's shareholders, what are the
advantages of a sale of the company to a strategic buyer versus an IPO? Appendix 1: Meulenbroek's Memo [confidential - to be provided] Appendix 2: Celtel Financials Group Key Performance Indicators
Consolidated P&L
Consolidated statement of Cash Flows
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