PRIVATE SECTOR BUY-OUT OF MARCOC TELECOM AS VIVENDI SET TO SELL STAKE? 

Mergers, Acquisitions and Financial Results

Morocco’s Maroc Telecom could end up under private control sooner than expected as a result of a rushed asset sales by its second-largest shareholder, Paris-based Vivendi Universal SA.

Potential Arab buyers and their bankers say they have been approached with an offer to acquire 51% of the company. Vivendi, the cash-strapped media and entertainment conglomerate, reportedly hired French bank Crédit Agricole SA to sell its 35% stake in Maroc Telecom at an estimated price of €1.6 billion (US$1.7 billion). Vivendi and Crédit Agricole Indosuez, the investment banking arm of the secretive bank, both declined to comment on the matter.

But bankers say Vivendi is talking with the Moroccan government about buying part of the state’s stake and combining it into one block that would give it control, thereby fetching a premium for the shares. Maroc Telecom would then fall into the private sector almost six months earlier than when Morocco had planned.

Under Morocco’s known plans, the state was not due to lower its 65% stake until at least September. But Paris-based Vivendi is on a slightly more accelerated timetable. It aims to raise €16 billion from an asset disposal program launched last summer, after a change of management prompted by heavy losses and a liquidity crisis. The former water company took on €20 billion in debt in an acquisition program that built up its U.S. entertainment business, though it has already reduced some of that debt through asset sales.

Vivendi and the Moroccan government have several agreements covering Maroc Telecom. Vivendi has a call option allowing it to buy an additional 16% of Maroc Telecom between Sept. 1, 2003, and June 1, 2005. Conversely, Morocco has a put option allowing it to sell 16% to Vivendi. Both options are exercisable at "fair market value," although details of how this would be calculated have not been made public.

Pre-emption rights also bind the two shareholders, should one of them seek to sell shares to a third party. To be able to offer a controlling stake now, Vivendi must have negotiated an early exercise of its call option.

Telecom executives say several Arab investors and trade buyers had been approached, including Orascom Telecom, an Egyptian cellular phone company with a strong presence in North Africa; Saudi Arabia’s Dallah Baraka Group, an industrial and services conglomerate; and Mobile Telecommunications Co., a Kuwaiti network operator with a war chest estimated at more than $500 million.

The chief financial officer of one Middle Eastern company says he was being "called at least once a week" about Maroc Telecom. "It is a good company, with very little debt, but operating in a relatively poor and slow-growing market," he says. Referring to a recent estimate of €1.6 billion for the 35% stake, he adds, "the price being mentioned is unrealistic."

A Paris-based investment banker who has advised a potential buyer, says: "If they expect to do a deal valuing the whole company at €4.57 billion, they are either being very optimistic or Crédit Agricole has come up with some innovative form of financing the deal."

He also says that by offering a 51% stake in the company, Vivendi was hoping to boost the price with a control premium. Vivendi paid €2.2 billion for its 35% stake in December 2000.

Vivendi has been an aggressive seller of assets since last summer, when the company sacked then-chairman and chief executive Jean-Marie Messier, the architect of the acquisition program.

In December, the company sold its American publishing arm, Houghton Mifflin, for $1.66 billion to an investment team that included Thomas H. Lee Partners, Bain Capital Inc. and The Blackstone Group. Earlier that month, Vivendi sold its 34% stake in American power generator Sithe Energies Inc. to Denver-based Apollo Energy LLC for $323 million and announced plans to sell its EchoStar Communications Corp. stake back to the satellite company for $1.1 billion. The company had sold its non-U.S. publishing assets for $1.17 billion to French rival Lagardère SCA.

Vivendi deepened its cash needs in December when it took control of Cegetel by buying 26% of the French telecom concern for $4.1 billion. The move thwarted a buyout effort by Vodafone Group plc, the U.K.-based wireless giant.

The Deal