Vivendi deal with Maroc Telecom: MENA telecom valuations face a reality check

AMMAN, Jordan, Dec. 27, 2000 -

The Arab Advisors Group, a leading specialized new economy research and consulting company, has released new research shedding analytical light on Vivendi's US$ 2.11 billion purchase of 35% of Maroc Telecom.

Under the terms of the deal, which was announced on December 22, 2000 Vivendi Universal will take a 35% stake in Maroc Telecom, Morocco's national telecom operator, as part of the partial privatization program overseen by Morocco's national Telecom regulator The Agence Nationale de Reglemention des Telecommunications (ANRT). Vivendi will pay US$ 2.11 billion for its 35% stake in Maroc Telecom, which remains Morocco's fixed services monopoly provider in addition to operating a GSM network that competes with Telefonica-led Medi Telecom.

The research note, released to subscribers of the Arab Advisors Group's Strategic Research Service, provides an in-depth analysis on the various implications of the deal including a benchmark analysis of the valuation of Maroc Telecom within the context of other privatization and liberalization deals in the Middle East and North Africa (MENA) market.

The note also examines the status of the Moroccan telecommunication market, and the implications that the investment might have on the overall picture of the MENA telecom market in general, and specifically on other privatization processes and liberalization deals that are in the making today.

According to the Arab Advisors Group, the deal puts the market value of Maroc Telecom at US$ 6.04 billion, which is around five times the year 2000 revenues of almost US$ 1.19 billion, and less than ten times year 2000 EBITDA.

The report compares the new valuation to $1.08 billion paid in the near past by the Medi Telecom consortium, led by Telefonica (Spain) and Portugal Telecom, for the second GSM license in the country, and provides a comparative analysis of the two deals.

The Arab Advisors Group also provides an overview of Morocco's telecommunication sector. According to the research, opening the country's cellular market to competition resulted in an enormous growth in the market.

While cellular penetration rate increased from 0.05% in 1994 to 1.34% in 1999, raising the number of subscribers to 375,000 subscribers, a number that has increased exponentially within less than a year of Medi Telecom's launch of full service in April 2000, bringing the number of subscribers to an astounding 2.5 million subscribers (a 568% increase of 2.12 million). The Arab Advisors Group estimates that Maroc Telecom has an 80% market share of the GSM market while Medi Telecom has the remaining 20%.

According to the Arab Advisors Group analysis of the deal, the over all regulatory environment in Morocco, and the positive implications brought forward by the execution of this latest privatization deal, the report expresses optimism in the fact that the partial divestiture of the Moroccan government from Maroc Telecom will increase the government's incentive to push through with its liberalization agenda, as it will be less likely to "favor" one operator in the market.

The Arab Advisors Group, therefore, deems it very probable that the liberalization timeline in Morocco, as set by the regulator, will be achieved. Accordingly, the Arab Advisors Group anticipates the licensing of a second data-communication operator by 2002, a second fixed operator after 2002 and a third GSM operator after 2003.

Finally, the report stresses that Vivendi's stake in Maroc Telecom is yet another example of the strong interest of French Operators to enter the Arab World's markets. Prior to Vivendi's entrance, France Telecom setup shop in Jordan, Egypt, and Lebanon. France Telecom's earlier attempt to enter Morocco failed after Medi Telecom won the bid for the North African state's second GSM license. With Vivendi in Morocco, French operators now have substantial presence in all Arab countries that have introduced a level of liberalization in their telecommunication markets.