Vodafone Group Plc has won the live auction for Turkey’s second largest mobile phone operator Telsim Mobil Telekomunikasyon AS. The auction was broadcast live on Turkish television on Tuesday, and Vodafone won with a bid of $4.55bn in an open auction tender where the highest bid won.
There were seven bidders in the running, most of them from the middle east. These include Etisalat (UAE), Orascom (Egypt), MTC (Kuwait), and International Investment and Telecommunications (UAE). The three European bidders were Vodafone (UK), Systema (Russia), and Endeks (Germany). France Telecom SA and Norwegian carrier Telenor ASA recently withdrew from the auction.
Vodafone was not one of the favorites to win but it is keen to expand into developing markets. In early November it paid approximately ZAR 16bn ($2.41bn) to raise its stake from 35% to 50% in South Africa’s largest mobile operator Vodacom (Pty) Ltd, and in October the Newbury, UK-based operator paid INR 67bn ($1.49bn) to re-enter the Indian market when it purchased a stake of just over 10% in Bharti Tele-Ventures Ltd, India’s mobile market leader. In March it acquired Romanian mobile phone group Mobifon SA, and rapidly growing Czech wireless operator Oskar Mobil AS.
Vodafone decided to risk the ire of its shareholders by submitting a substantial bid for the Turkish operator. Kuwait’s MTC withdrew from the bidding at $4.53bn. Turkey’s Savings Deposits Insurance Fund had set a minimum sale price threshold of $2.8bn, and there had been speculation that the bidding could reach as high as $5bn or even $7bn.
Turkey is an attractive market because the country of 72 million people has only a 53% mobile penetration rate. This, coupled with the fact that there are only three mobile operators in the market there, means there is plenty of scope for growth, unlike the heavily saturated western European markets.
The clear market leader in Turkey is Turkcell, which has nearly 27 million subscribers. Telsim is the second largest mobile operator with approximately 9.5 million subscribers. Third is Avea, a partnership between Turk Telekom and Telecom Italia Mobile that has about 6.5 million users.
We are delighted to have won the tender for Telsim, said Vodafone’s chief executive Arun Sarin. With a larger population than every European country except Germany, and a penetration level of approximately 53%, the Turkish market represents a major growth opportunity.
Vodafone said it will have to spend around $1bn in additional short-term funding for Telsim, which is expected to make a net loss in the short to medium term. However, the purchase is not expected to have any impact on the group’s share buyback program or its credit rating, although it will dilute Vodafone’s adjusted earnings per share in the short to medium term.
The auction is also good news for mobile giants Motorola Inc and Nokia Corp. Earlier this year Telsim was found guilty of cheating Motorola out of $2bn in loans. Telsim had apparently borrowed nearly $2bn from Motorola in order to finance the building of a Motorola-constructed mobile phone system in Turkey. Telsim also owed Nokia approximately $900m. Both have since settled their lawsuits against the Turkish operator, and are expected to receive a sizeable percentage of the proceeds of the sale.
Telsim also owes $700m to the Turkish Treasury, telecommunications board, and the finance ministry. The operator has in effect been in receivership since February 2004 when state authorities seized 219 companies that belonged to its owner, the Uzan family whose business empire collapsed in 2003 after a large-scale fraud scandal.