Emerging markets operator Millicom is to buy an 85 per cent stake in Zanzibar Telecom (Zantel) from Etisalat, describing it as “a natural fit for Millicom’s strategy”.
Zantel is being bought for $1, with Millicom assuming debt obligations of $74 million. In addition, it will have up to $32 million in net current liabilities at the time of closing.
Millicom described Zantel as “the leading mobile telecom operator on the islands of Zanzibar”, with 2014 gross revenue of $82 million and 1.7 million subscribers on the islands and mainland Tanzania.
Tanzania is Millicom’s biggest market in Africa. According to GSMA Intelligence, Millicom’s Tigo operation in the country has 8.7 million connections and is the third largest player. A tieup with Zantel will give it a greater market share than current second-placed rival Bharti Airtel, and enable it to better compete with number one operator Vodacom.
It touted other benefits of the deal including technical synergies including procurement and national roaming; and the potential to capitalise on mobile data demand and rollout 4G coverage.
The intention is to continue with the Zantel brand, “while delivering cash flow growth by leveraging technical and operational efficiencies”.
Millicom said that it expects the EBITDA of Zantel to reach $25 million through “a combination of bringing new products and services to the existing customer base and delivering greater efficiencies.”
The agreement allows for an adjustment to the total price if the target is not reached by the end of 2019.
Millicom has also arranged a $100 million 5-year credit facility with Zantel with a “leading international bank”.
The remaining 15 per cent stake in Zantel is owned by the government of Zanzibar.