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Naguib Sawiris (CEO and Chairman, Orascom Telecom Holdings CEO and Chairman, Weather Investments)
No Egyptian business leader’s every statement is as scrutinized at home and abroad as Naguib Sawiris’s, the visionary founder of Orascom Telecom Holdings and Weather Investments, which last year pulled off the biggest leveraged buyout in European history when it purchased the ailing Italian telecom Wind.
In the years since the dotcom meltdown, business journalists have been highly skeptical, to say the least, of the “operational synergies” and resulting cost savings that corporate chieftains say make mergers and acquisitions worthwhile.
From dotcoms and Big Pharma to the US telecommunications and media industries, business pages are littered with reports of mergers gone awry. Conditioned to expect an AOL-TimeWarner-style destruction of shareholder value at every turn, the business press began sharpening its knives the moment Sawiris announced he was competing with buyout specialists Blackwater to snap up Wind, the ailing Italian fixed-line and mobile operator then owned by Enel, in a deal that would be worth billions of euros.
Orascom Telecom, they said, is an emerging markets specialist. What expertise could it have in running a network in a mature economy? According to Naguib Sawiris: Plenty. In the months since, Weather has not only repaid portions of its debt nearly two years ahead of schedule, it has also saved some 250 million through the very synergies that Western CEOs are so often unable to pull off.
About half of that savings, Sawiris says, came from comparing Wind’s contracts with OT’s, then entering a round of re-negotiations. The one-month exercise, he adds, saved the group 100 million. Another 150 million came by optimizing Wind’s network rollout and incorporating new efficiencies in design. The result: Wind posted its first profitable quarter ever in 3Q2005, netting profits of 2 million against a 46 million loss in the same quarter of 2004.
Just weeks later, Sawiris quelled complaints that he seemed “distracted” (as one financial daily put it) from his emerging markets focus by announcing OT had taken a 19.3% stake in Hutchison Telecommunications International Limited worth $1.3 billion. Hutchison, an emerging markets specialist like OT, has networks in Hong Kong, Ghana, India, Israel, Indonesia, Thailand, Sri Lanka, Macau and Vietnam.
Is an OT-Hutchison merger in the works? That’s one of several questions Sawiris addressed last month in an exclusive discussion with bt. Excerpts:
In the last two years, the most remarkable change in Orascom Telecom has been one of size and scale. We broke the 30-million-subscriber mark last year and the target this year is 50 million. Look at our market cap: It’s now between $13 billion and $14 billion as we have moved from being a regional player to a truly international one. We’re now considered one of the largest in the global industry. Add Wind plus Orascom and we’re the eighth-largest operator globally, and the acquisition of 20% of Hutchison — and the possibility of us becoming one company in the future — makes us a much larger player based on geography and population. The combined addressable market of this whole picture is over 2 billion people, so I see us becoming one of the top two telecom groups in the world. That’s the biggest change in the past two years.
As for what’s next or how we get there? There are really only two steps. First is to list Weather, which holds 100% of Wind and 50% of OT, on the Milano stock exchange. The press keeps talking about what we’re looking to acquire next, but the listing is definitely the next major milestone we’re looking at in the coming year. After that, the second step is trying to come to a conclusion in the partnership with Hutch.
We’re already consolidating all of our procurement — our handsets, roaming agreements and other items like that — with Hutch, the same process we went through with Wind. I could see these two companies becoming one in the future, whether it’s a merger or a share swap or whatever. It’s certainly on the horizon, but it depends on there being a willing party on their side — because it’s their call, you know. That will take time.
Hutch is already very similar in nature to OT: They are present in what we could call a subset of countries with high populations and low penetration rates. Their strategy is essentially the same as ours, and Hutch is a continuation of our footprint. We’re in Pakistan and Bangladesh, for example, and they’re in India and Sri Lanka. You know how it is: When people from here go on vacation in that part of the world, they go to Thailand, Indonesia, Vietnam — all countries where Hutch has a presence. We’re not reporting their revenues on OT’s balance sheet or anything, though — we treat it as a pure investment.
That’s about it —we don’t have anything else on the horizon. I’m not ruling out acquisitions, but there’s nothing left from a greenfield perspective. You know, my view is that there are no more greenfield opportunities left in the world. There’s the third operator in Saudi Arabia later this year, and there’s the third operator auction in Egypt, where we’re already number one with MobiNil, and that’s it.
Within the next two or three years, you will see big consolidation in the industry, meaning the number of players worldwide will be reduced to a handful of very strong groups. I see no hope for individual operators — the one-country operators will become unsustainable, they’ll have to join one of the bigger groups. It’s just like what happened with the banks, you know? The insurance industry and pharmaceuticals, too: You’ve seen all these big mergers and the number of players being reduced because of the synergies and cost savings you can achieve, as well as the new competitiveness. Telecoms will be no different.
Is the fixed-line operator dead? No. No, no, no. I don’t think so. With triple-play emerging, fixed-line has taken on a new appeal, a new lease on life. I’m now more or less convinced that fixed-line could be a new value-creation alley by providing triple-play services, especially video streaming and TV, IPTV and so on. Are we interested in that? Absolutely, just like we’re interested in WiMax and fixed-mobile convergence. It’s the technology of the future and it’s definitely coming, but there are still hiccups in the technology at the moment, especially in the handsets. It’s like 3G was four years ago, so I’d say it’s about two years down the road.
In the meantime, I think the Egyptian economy is going to continue growing powerfully. My outlook is very positive, and I’m convinced Egypt is emerging as a regional hub. Its strength is in the population, and there are still an untold number of opportunities in areas including real estate and hotels, in industries like agriculture. There is massive potential for further investment.
Look, you finally have a government now that has improved the logistics of investment, that’s working on the bureaucracy and the way they deal with investors. With all the cash now in the Middle East coming from record-high oil prices, Egypt is becoming a premier regional investment destination.
I have no doubts about it. What investors have been looking for for all of these years has been a government that knows how to talk to them, and now they have that. Still, they need to accelerate privatization a little and not listen to those who want to drag us back to the Nasser era. That would be a disaster.
Will we still be an ‘Egyptian company’ in two or three years’ time? Absolutely. We are absolutely an Egyptian company. Orascom Telecom is Egyptian, and we’ll maintain all of our emerging market activities through OT. Weather is just a vehicle in case we want to expand in Europe.
Outside telecom, I’m really interested in media and television. Privatization is coming, and I would love to own a terrestrial station. There are still many people who can’t afford a satellite dish — even if that number is getting lower and lower by the day — and this way you can speak to 70-plus million, not just the 5 or 10 million who have a satellite dish.
And yes, television production is part of it, but I’m not really interested in anything outside of that. I’m already in a partnership with Mr. Gamal Marwan in Melody. We own two stations and just launched Melody Films. We’re going to launch on satellite with Nahrain, our Iraqi station, in the next few days, and it will be seen all over the world. And by the end of this year, we’re launching a new station called OTV. It will be Egyptian generic — movies, programs, life shows. It will have its own programming and some back catalogue.
So am I optimistic about Egypt? One-hundred percent. If I didn’t think this was the place to be, do you really think I’d continue investing as heavily as I am? It’s the giant awakening.
Posts: 184 | Registered: Mar 2006
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