m&a pitchbook

8/19/2019 M&A Pitchbook

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An increasing presence in Africa

“

Stay Hungry, Stay Rich”

Presentation to the Board

26 November 2015 Confidential


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Agenda

2

1. Industry Overview

2. Companies Overview

3. Merger Rationale

4. aluation

!. "ynergies

#. $eal "tructure

%. Ris&s


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3

1. Industry Overview


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Industry Overview

4

2''( 2'') 2'1' 2'11 2'12 2'13 2'14

3#.(* 3#.)*3#.4*

34.)*

33.!* 33.3* 33.!*

Global EBITDA ar!in2

2'1(2'1! 2'1# 2'1% 2'1)

+ig, growt,

Mar&et consolidation

+ig,ly competitive

-ow rofita/ility

1" #o$r%e& Cis%o' 2015

2" #o$r%e& G#A' 2015

2'14

Global obile Data Traffi% (ore%ast )er *e!ion +EB ),m-1

!%* CA0R 2'14 2'1)-atin America (.4*

Middle ast 5 Africa 12.!*

Central 5 astern urope 14.4*

6estern urope ).)*

7ort, America 1!.%*

Asia acific 3).1*

0lo/al 8elecom


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Industry Overview

!

91''M people e:pected to ;oin middle class /y

2'2'

$ata pac&ages revenues on t,e rise

Currently 1)* of 8otal Revenue3

Increasing demand for new online applications mergence of ecommerce< mo/ile advertising

and cloud computing

0rowing in/ound investments from nonAfrican

operators "ince 2'11 C,ina Mo/ile< America Movil

and impelcom manifested interest in

t,e continent

=,arti ac>uired ?ain@s African assets< odafone

ac>uired a ma;ority sta&e in odacom

." As of November 10' 2015

/" #o$r%e& orld Ban' 2015

2''' 2''! 2'1' 2'1! 2'2' 2'2!

322 312 2)3 2#% 23' 1(1

4!# !4!#!4 %%!

)11 1'!163

85105

129

152

185

Afri%an iddle Class on the rise +in million-/

A/ove ! 0$ per capita

A/ove overty -ine 5 =elow ! 0$ per capita

=elow overty -ine

African 8elecom


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#

2. Company Overview


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Company Overview

%

China Tele%om5

+ead>uarterB =ei;ing

Mar&et CapB 2#%.4!= RM=

rofit MarginB !.4!*

B 1!.'2

"B 3.3'

-isted onB 7D"< "+

95

4

1

C,ina

+ong ong

Macau

1'*

1%*

35%14*

24*

*even$es Breadon b3 #e!ment6

6ireline voice

Mo/ile voice

Internet

=usinessto=usiness

Ot,ers

*even$es Breadon b3 *e!ion4

5" #o$r%e& Bloomber!' 2015" As of November 10' 2015

6" #o$r%e& China Tele%om' 2015" As of De%ember .1' 201/4" #o$r%e& (a%tset' 2015" As of De%ember .1' 201/

Operations primarily in C,ina 6orld largest wireline 5 /road/and provider

"erves 1(#M mo/ile su/scri/ers Compre,ensive portfolio of telecom services

C,ina 8elecom


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Company Overview

(

TN Gro$)

+ead>uarterB Eo,annes/urg

Mar&et CapB 11).)4 RM=

rofit MarginB 2!.##*

B ).%2"B 14.#1

-isted onB E"

59.9

28

*even$es Breadon b3 *e!ion10

0,ana

Ivory Coast

7igeriaCameroon

"yria

Iran

"udan

Fganda

"out, Africa

#'*19%

10%

9% 1*

*even$es Brea1don b3 #e!ment6

Airtime 5 "u/scription

$ata

Interconnection

Mo/ile oiceRoaming

Ot,er

" #o$r%e& Bloomber!' 2015" As of November 10' 2015

" #o$r%e& (a%tset' 2015" As of De%ember .1' 201/10" #o$r%e& TN' 2015" As of De%ember .1' 201/

Africa@s largest telecommunications provider Operations in 22 mar&ets

8op two operator in many locations wit, leadingmar&et s,are

"trong distri/ution c,annels Ro/ust platform of digital products and services

M87 0roup


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Company Overview

)

Mar&et erformance

2'') 2'11 2'12 2'13 2'1!'

!'

1''

1!'

2''

2!'

M87 "E >uity

E"

MG6$ Inde:

Inde7 8al$e

2'') 2'11 2'12 2'13 2'1!'

!'

1''

1!'

2''

2!'

MG6$ Inde:

+G

C,ina 8elecom

Inde7 8al$e

5 3ears #to% Pri%e Pattern 9 TN Gro$)11 5 3ears #to% Pri%e Pattern 9 China Tele%om12




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Company Overview

1'

Fnreac,ed rural population Operational mar&ets li&e 7igeria ,ave

penetration levels ;ust a/ove #'*

-8 "u/scri/ers e:pected growt,

:pand innovative offerings

Cloud< m+ealt,< mInsurance

0eopolitical crises

$ifferences in legislation wit,in operating

countries

andalism Copper ca/les< optic fi/res and generators

targeted /y t,ieves

"out, Africa

0,ana

Fganda

"udan

7igeria

' 1((

Ease of Doin! B$siness Inde71/

$ealing wit,Constructionermits

Registeringroperty

4nforcingContracts

2'14 2'1(

200,000

51,800,000

Afri%an :TE #$bs%ribers Pro;e%ted Groth1.

CA0RB 3'1.1%*

M87 0roupB Opportunities 5 8,reats

11" #o$r%e& (err3 :"' 201/

12" #o$r%e& orld Ban' 2015


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11

3. Merger Rationale


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Merger Rationale

12

0aining a strong foot,old in Ht,e mo/ile continent

An African su/sidiary was esta/lis,ed in Eune 2'1!

Cost savin!s arising from&

i. CentraliJed planning 5 engineering

ii. "upport departments centraliJed at t,e group level

iii. "tandardiJation of tec,nologies and e>uipment

iv. "tronger /argaining position negotiating over

contracts 2'142'132'122'112'1'2'')2''(2''%2''#2''!

2).2*3'.2*

2!.'*

3'.(*

34.!*3#.1*

44.!*

!'.'*!1.2*!2.4*

China Tele%om De%linin! EBITDA ar!in1.

1." #o$r%e& China Tele%om' 2015


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13

4. aluation


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aluation

14

Dis%o$nted Cash (lo

Pre%edent Transa%tions

Tradin! Com)arables

K!!.'' K#'.'' K#!.'' K%'.'' K%!.'' K('.'' K(!.''

TN (ootball (ield < Com)arable Com)anies' Pre%edent Transa%tions and DC( Anal3sis

#.#: L ).): -8M=I8$A

1'.3* 11.3* 6ACC<2.!* 3.!* g

K#).!' K%3.!'=41"51

Mar&et

rice14

K%'.22

!.': L %.3: -8M

=I8$A

M87 0roupB oot/all ield Range

Tar!et Pri%e

1/" #o$r%e& Bloomber!' 2015" As of November 10' 2015


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aluation

1!

TN Dis%o$nted Cash (lo

orecasting eriod 1' years

8erminal 0rowt, Rate 3.''*

6ACC 1'.%%*

>uity alue K131


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1#

!. "ynergies


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"ynergies

1%

8otal "ynergy due to Cost "avingsB K2%/n vs Ot,er "ynergiesB K1%/n Cost of Goods #oldB annual estimated red$%tion of 0"5>' due toB

i. "tronger /argaining power of com/ined firms

ii. -ower installments costs

#ellin! General ? Administrative E7)ensesB annual estimated red$%tion of 1> due toB

i. CentraliJation of /usiness planning< radio engineering and support functions

ii. Mar&eting and Advertising savings

2'1! 2'1# 2'1% 2'1( 2'1) 2'2' 2'21 2'22 2'23 2'24

"05A "05A "ynergy ffect

2'1! 2'1# 2'1% 2'1( 2'1) 2'2' 2'21 2'22 2'23 2'24'

!


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1(

#. $eal "tructure


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$eal "tructure

1)

#to% Deal

=ot, parties will s,are t,e /enefit in a stoc& deal

A stoc& deal will not decrease C,ina 8elecoms credit rating

Currently< t,e credit rating is AN itc,< w,ic, is among t,e /est in t,e industry

C,ina 8elecom will /e a/le to o/tain M87s nonassigna/le contracts< permits and licenses

ven wit,out t,e consent of t,e ot,er party of t,e contracts< permits or licenses 8,e total cas, 5 e>uivalents as reported in t,e /alance s,eet is =21"15B

8,is is /elow 1!* of t,e payment to target s,are,olders< ,ence a pure cas, deal is not to recommend

M87s identity< structure and operations will mostly remain unc,anged

",are,olders of M87 will receive ta:free s,ares

Ma;or investor may /e more easily persuaded to sell

P$r%hase Pri%e

M87s intrinsic e>uity value per s,are is K%1.!1

8,e premium is set to /e 2!* a/ove intrinsic value< wit, a purc,ase price K().3)

:c,ange Ratio in t,is scenario is 1).#4

inancing

#)*

31*

#3ner!3 Distrib$tion

M87 C,ina 8.C


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$eal "tructure

2'

K1%#.3!/n

8al$e of

tar!et to

a%@$irer

K12).4#/n

#tand<

alone val$e

of tar!et

K4#.()/n

8al$e of

s3ner!ies

K1#1.(3/n

Pa3ment

to tar!et

shareholders

K14.!2=

$eal 7

M87

C,ina 8.C.

7

Distrib$tion of #3ner!ies


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21

%. Ris&s


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Ris&s

22

assive (ine in Ni!eria

7igerian government told to deactivate !.2 million unregistered "IM cards /elieved to /e used /y Islamic e:tremists

M87 penaliJed wit, a !.2/n fine /ecause of t,eir failure to comply

7igerian government ,as legal /asis from t,e 7CC Registration of 8elep,one "u/scri/ers Regulation

Anti


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Ris&s

23

verestimated #3ner!ies

8,e second most occurring reason for disappointing deal outcomes 1!

Inter


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Conclusion

24

Africa is t,e fastest growing continent for telecom

M87 is t,e /iggest telecom company in Africa wit, a solid profit margin trac& record

8,e com/ined company will /ecome t,e world 4t, largest telecom in terms of Mar&et Cap

"ynergies will come from cost savings< increased growt, rate

An allstoc& deal will distri/ute t,e potential ris&s entailed


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2!

Appendi:


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M87 Intrinsic aluation

2#

TN Gro$) Discounted Cash Flow Analysis

K in millions< fiscal year ending $ecem/er 31 Operating "cenario

istori%al Period Pro;e%tions Period

2012 201. 2'14 2'1! 2016 2014 201 201 2020 2021 2022 202. 202/

#ales =5.'40"02 =60'41". =65'06"/2 =6/'15/"25 =64'22" =41'52"45 =46'55"44 =.'210"// =4'15/"62 =1'25"45 =5'612"6 =100'1//"4. =10/'1"5

% growth 7A 12.#4* %.'4* 1.41* !.%2* #.')* #.44* (.#!* 4.%4* 4.%4* 4.%4* 4.%4* 4.%4*

CO0" 11

Supplementary Schedules

#et $oring &a'ital

6or&ing cas, 1=eginning net 5 32


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M87 Intrinsic aluation

2%

TN Gro$) Discounted Cash Flow Analysis (2) K in millions< fiscal year ending $ecem/er 31 Operating "cenario

Free Cash Flow Calculation Pro;e%tions

2015 2016 2014 201 201 2020 2021 2022 202. 202/

=I8 1)

ACC 10"44>

P8 of (ree Cash (lo 11'/52"62 10'/1"0 '2"4. '5"10 '.2/"1 '/.5"45 '.."15 '/56" '005"0 4'54"5

P8 T8 100'/42"/6

Enter)rise val$e 1.'661

-ess 2'14 $e/t !#


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M87 Relative aluation

2(

TN Gro$)Trading Comparable Analysis (¥ in millions, iscal year ending December !")

Com)an3 aret Ca) Enter)rise 8al$e

Enter)rise 8al$e ,

:T #ales 2015E #ales 2016E #ales:T

EBITDA2015E EBITDA 2016E EBITDA#$bs%ribers

Mo/ile 8elecom K33


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C,ina 8elecom Intrinsic aluation

2)

China Tele%om

(iscounte) &ash *low +nalysis K in t,ousands< fiscal year ending $ecem/er 31 Operating "cenario istori%al Period Pro;e%tions Period

2012 201. 201/ 2015 2016 2014 201 201 2020 2021 2022 202. 202/

#ales = 2.'04.'000 = .22'25/'000 = .2/'./'000

=

./0'61.'400 = .54'6//'.5 = .6'.4.'416

=

./'15'44 = /1.'64'41 = /.0'/22'55

=

//5'/4'.46= /5'65'416 = /4/'..'6// = /'56'./

* growt, 7A 13.(4* '.##* !.''* !.''* 3.''* %.''* !.''* 4.''* 3.!'* 3.2!* 3.13* 3.''*CO0" ##

6or&ing cas,

AR 1(

=eginning net 5 4'#


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C,ina 8elecom Intrinsic aluation

3'

China Tele%om

(iscounte) &ash *low +nalysis -"

K in t,ousands< fiscal year ending $ecem/er 31 Operating "cenario

Free Cash Flow Calculation Pro;e%tions Period 2015 2016 2014 201 201 2020 2021 2022 202. 202/=I8 2)

('

Capital e:penditures %# Enter)rise 8al$e /5'62'.2-ess 2'14 $e/t )'


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C,ina 8elecom Relative aluation

31

China Tele%om 0ra)ing &om'arales +nalysis K in t,ousands< fiscal year ending $ecem/er 31

Com)an3 aret Ca) Enter)rise 8al$eEnter)rise 8al$e ,

:T #ales (1 #ales (2 #ales :T EBITDA (1 EBITDA (2 EBITDAC,ina Fnicom K 1)4

8 Corporation 41


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"ynergies

32

resent alue

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