The rumours were true after all. Yesterday, news broke out of Warid being taken over by Mobilink. Warid's sale is finally reaching finality after two and a half year since it was first put up for sale by its sponsor, the Abu Dhabi Group (ADG). Warid had put itself on a strong path by offering LTE services late last year. Its basket of high-end post-paid users would have been an added attraction.
The consideration of the transaction will be completed in stock. Mobilink sponsors, VimpelCom and Global Telecom Holding, will acquire 100 percent of Warid's shares. In return, Warid's ADG shareholders, Warid Telecom Pakistan and Bank Alfalah Limited, will acquire 15 percent of Mobilink shares. That means Warid probably received a depressed valuation. Among the seven-seat board of directors of the merged entity, six directors will be from Mobilink sponsors and one will be from ADG.
The merged entity may enjoy gains in capital and operating expenditures. As per the VimpelCom statement, about $500 million of such synergies will be realized over the coming years. With $1.4 billion in combined entity revenues, it will be a major player in the future. Combined, both companies currently have an Ebitda margin of above 40 percent and Net Debt / Ebitda of about 1.8 times, as per Mobilinks notice to the KSE yesterday.
As identified in this column earlier, the potential acquisition makes a lot of sense for Mobilink. Thanks to Warid's 10 million+ 2G users, Mobilink will be able to extend its market leadership, reaching over 45 million users. That is about 38 percent of the 2G market, lower than the 40 percent threshold that is deemed as dominant.
With Warid on board, Mobilink will also be able to compete in the 4G/LTE market. Without actually participating in a spectrum auction in the future, Mobilink, after this transaction, would not only acquire a sizable spectrum, but also Warids growing base of LTE users, which totalled 156,827 as of September 2015. So Mobilink, like Zong, will become an operator that offers all the services: 2G, 3G, and 4G. It will then be a matter to scale up the services further, especially LTE.
Following regulatory approvals, the proposed transaction is expected to close within next six months. Following that close, merger will be completed within the next six months. So we are looking at a timeframe of up to 9-12 months before a merged entity comes online. Since it is the industrys first consolidation, it is uncertain how useful the merger will be. But a market of four is now in the offing, considered by many as the maximum number of operators the market can do with.
Anecdotal evidence suggests that many Warid users, especially the high-end folks, cherish their operators service quality. Whether Mobilink will be able to match or exceed those expectations should be a concern for the new entity that will emerge. How these users, which have helped Warid, sustain comparatively higher ARPUs through the years, feel about the proposed merger may determine the initial success of the new entity.
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