India dials Africa

India dials Africa – Bharti Airtel acquires Zain’s African Assets

By Anuj Jain, Chiropriya Dasgupta, and Saurahb Arora under the supervision of Professors Andrew Karolyi and Glen Dowell – 19 pages. Original version dated: 06/7/2010; current version: 03/22/2015.


Case Summary

On March 30, 2010, India’s largest cellular service provider Bharti Airtel had announced that the firm entered into an agreement with Zain Group (“Zain”) to acquire Zain Africa BV for $10.7 billion. Given the underlying implications and uncertainties in this deal, Sage Stanley Fund’s Sam Turner had an important decision to make: Should the Fund hold, increase or possibly sell off its existing shareholdings in Bharti Airtel?

Bharti Airtel, headed by Sunil Bharti Mittal, is India’s largest and the world’s third largest cellular service provider, with more than 131 million subscribers. Mittal built Bharti from a start-up cellular company in 1995 into a full service provider with 25,000 employees and revenues of about US$7.25 billion in fiscal year 2009. Despite Bharti’s success and rapid growth in the Indian mobile phone market, Mittal foresaw multiple upcoming industry wide business risks such as new regulatory policies that could pose a threat to firm. In the midst of these competitive changes in its home market, Bharti had turned to international expansion in Africa as a means of growth. Africa appeared to be an attractive market – In 2007 the market was growing at 38% annually, and the cost-conscious consumer behavior was similar that of the Indian market. These conditions seemed to favor the entrepreneurial mindset of Mittel, and his aggressive operational expertise.

However, there were several key issues surrounding this deal that bothered Turner. First, most of the economies in Africa were still underdeveloped and prone to regulatory risks. Second, the all-debt deal acquisition would have reduced Bharti’s earnings in the short term, and increased Bharti’s leverage. Finally, India’s complicated and opaque disclosure requirements further complicated the objective assessment of this deal. Should Turner trust Sunil Mittal’s track record and hold or increase its position in Bharti? Or should he err on the side of conservatism and reduce the Fund’s investment position?

Discussion Objective

This case provides students the opportunity to evaluate potential acquisition opportunities in emerging markets. Through the discussion of growth opportunities, financial valuation and risks, as well as potential governance issues in the African telecom industry, students get a chance to appreciate one of the major dilemmas that executives currently face in emerging economies.

Subjects Covered

  • Emerging Markets Corporate Strategy
  • Emerging Markets Corporate Governance
  • Emerging Markets Marketing
  • International Finance
  • Cross-border Mergers and Acquisitions
  • Investment Management
  • Investment Risk Assessment

Geography Covered

India, North and Sub-Saharan Africa

Supplementary Materials Available

Teaching Note (Upon request from the case supervisor)

Case Link