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Get Four
|  | DECEMBER 27, 2005
By Stanley Reed A Telecom King Broadens His HorizonsOrascom Telecom CEO Naguib Sawiris acquires a stake in Hutchison Telecom in a bid to expand his Egyptian company's global reachWhat do you do when one of your deals makes investors queasy? If you are an audacious poker player like Egypt's Naguib Sawiris, you do another deal to refocus their minds. That looks to be at least part of Sawiris's strategy in acquiring a 19.3% stake in Hong Kong-based Hutchison Telecommunications International (HTX ) for his Cairo-based Orascom Telecom Holding on Dec. 21 for $1.3 billion. Markets approved the move because Sawiris appeared to be returning to his former strategy of investing in fast-growing emerging markets, after a puzzling foray into Italy. In a complex transaction last spring, he personally bought control of Wind, the third-largest Italian mobile operator, for about $14 billion including debt. That deal, which at the time was considered Europe's largest leveraged buyout, worried Orascom investors, who feared that the Egyptian outfit's dazzling growth prospects would be dulled if Orascom merged with the slower-growing European business. GLOBAL AMBITIONS. "People like the fast-growing emerging-markets story," says Wael Ziada, an analyst at Cairo investment bank EFG-Hermes. "This is quite positive for sentiment." Since the Hutchison deal, Orascom's stock has risen by 2.6% on the Cairo & Alexandria Stock Exchange. Orascom also has a London listing. In a telephone interview, Sawiris told BusinessWeek Online that Orascom, which he described as the fastest-growing mobile operator in the world, was acquiring a stake in the second-fastest. The two companies "are extremely complementary," he said. "This extends our footprint in India and Southeast Asia." Sawiris, who once owned a nightclub in Cairo and still relishes evenings on the town, has serious ambitions of being a global operator on par with Britain's giant Vodafone (VOD ). He said that, when combined, Orascom and Hutchison Telecom have license areas that now cover 2 billion people, compared with 2.2 billion for Vodafone. Together, Orascom and Hutchison Telecom have 41 million subscribers -- less than a quarter of Vodafone's customer base. "It is a big story, a story that is just beginning," he said. ULTIMATE CONTROL. By buying the stake in Hong Kong- and U.S.-listed Hutchison Telecom from its parent, Hutchison Whampoa, Sawiris and Orascom extend their reach to promising Asian markets, including India, Sri Lanka, and Vietnam. Through its subsidiary Mobilink, Orascom is already the leading operator in Pakistan, with a 62% share. And it recently bought a mobile company in Bangladesh. Hutchison also has operators in Israel and Hong Kong, among other places. Sawiris made clear that he wasn't going to stop with just under 20%. The deal already gives him the option of increasing his stake by 3.7%. But there's no doubt he eventually wants control. Describing Hutchison Whampoa Chairman Li Ka-shing and Managing Director Canning Fok as "traders" who have sold valuable assets -- such as Britain's Orange mobile operator in the late 1990s -- he said: "They are not endgame players like myself." Says Sawiris: "We met, and there is good chemistry and an agreement to move on to the next step whenever they are ready to do that." He would have liked to buy a controlling interest now, but "it was not offered." He speculated that Hutchison wants to extract more value from its India franchise before selling out. COMPETITION ABOUNDS. The Hutchison buy, while not cheap, looks like a smart deal for Sawiris and Orascom, which he controls, serving as chief executive. Because markets such as India and Vietnam have relatively low mobile penetration, the stake gives him a good shot at growth at a time when his own key holdings in Egypt, Algeria, and Pakistan are facing challenges. In Egypt, Mobinil, the original cornerstone of the Sawiris empire, faces the arrival of a third operator in 2006 or 2007, which could lead to churning and price cutting. Sawiris is likely to encounter fierce competition in Pakistan from deep-pocketed United Arab Emirates-based Itisalat, which has acquired a local operator. His crown jewel, Algeria's Djezzy, also may see its red-hot growth slow in the coming years, analysts believe. Sawiris is the biggest mobile player in Iraq as well. At the same time, other operators, including Vodafone, have caught on to Sawiris' game and are joining him in bidding for mobile units that come on the market. In the latest deal, Vodafone paid a pricey $4.55 billion for Telsim, Turkey's No. 2 operator. SURPRISES IN STORE. Orascom's recent results have been nothing to sneer at. On Nov. 22 it reported that subscribers had reached 25.5 million -- a 125% increase over a year earlier. Revenues were up 63% on the previous year, to $2.5 billion, and net income rose 75%, to $491 million. Beginning in 1998, Sawiris has built Orascom into a company with a market capitalization of about $11 billion. Hutchison reported that by the end of the third quarter, its mobile customer base had reached 15.1 million -- a 34% year-over-year increase. For the first six months of this year, it posted revenues of $1.38 billion and a loss of $27 million. Sawiris, who has been a master at building and operating networks cheaply in low-income countries, says the companies will immediately begin working together to pressure suppliers to lower their prices. The estimated annual capital-expenditure savings: $300 million to $500 million. Sawiris also plans to use Orascom and Wind's combined size to lower costs -- though he now says he has no intention of formally merging the two. In a manuever that rattled investors, Sawiris put his family's 50% stake in Orascom into a vehicle called Weather Investments, which now controls Wind. He is chairman of Wind, as well as CEO of Orascom. Even so, "I am not going to merge," he says. "I have control of the assets, so why merge them?" But investors know that, with Sawiris, surprise is the only certainty.  Reed is BusinessWeek's London bureau chief
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