Authorities at the Liberian Telecommunications Corporation (LibTe lCo) say they are in serious negotiation to acquire Novafone, one of Liberia’s GSM mobile providers.
LibTelCo Managing Director and CEO Sebastian Muah told journalists at the Ministry of Information regular press briefing Thursday that their discussion comes amidst a big challenge from Liberia’s leading GSM service providers, Lonestar Cell MTN.
LibTelCo is owned by the Government of Liberia, a provider with the most capacity in the Cable Consortium Liberia (CCL). Muah says management had to convince government why the acquisition of Novafone was vital, stressing that had the leading GSM company acquired it, it would had made it a two operator and that the transaction would had resulted in a net loss of jobs for over 100 Liberians.
Muah, a 20 year veteran of the ICT sector explaning the ongoing takeover talks said at points in the negotiation he decided to back down, but it then became apparent that Lonestar/MTN would not be able to consummate the deal because they had been declared a dominant provider of voice and SMS in the sector. Therefore, regulations and laws would forbid such a takeover.
“When we heard about the World Bank’s consultant report from the West African Regional Communications Infrastructure Project report that Lonestar/MTN was now declared dominant, we immediately went back to the negotiation table to see how we could come out with a deal that would be great for our repositioning and divestment strategy, and in the immediate term provide an alternative that would be based on development of services beyond voice and SMS, but by using a modern infrastructure.”
Muah further outlined that the LibTelCo-Novafone deal as structured provides for the best option to reposition LibTelCo and bring value to the entity as such time the Government can divest at a profit to a genuine competitor, unlike a buyout leading to unemployment.
The LibTelCo boss assured that at no point in the transaction any compromise was made to shortchange the Government or the people of Liberia and that work is in progress with reputable international advisory firms to begin the development of what investment bankers call Information Memorandum. This, he says, is critical for part of the next steps in LibTelCo’s life once the acquisition is concluded.
Exhaustive Due Diligence From all indications, LibTelCo did not enter into the acquisition deal with Novafone blindfolded. “We did our homework, and while not all of what one does is perfect, we put in place a team of competent Liberian experts to help review and meet our objectives getting the best outcome for the corporation and the country” says Muah, adding, “We enlisted Baker and Tilly to review the assets and liabilities;and we enlisted Heritage Law Partners to conduct a full legal due diligence of the corporation and its owners. Those reports are back and we passed on our due diligence to the PPCC for its review.”
Commenting further, Muah said LibTelCo also engaged the Government key decision makers on the Debt Management Committee and the Economic Management Team to ensure the proposal made sense.
Making Sense of the Deal – The Rationale “The question that lingered was whether to sell LibTelCo today for about $15 million pittance and pay some liabilities and the Government could net about $10 million for an asset that has even greater potential than oil and gas; try to build from scratch an operational network to reach the scope of the smallest competitor, Novafone for about $35 million over a two-year period, or negotiate and acquire an operational network,” Muah averred.
The deal was straight-forward.“Our understanding of the Lonestar/MTN deal, was that the core network equipment was not part of the deal, and that Lonestar was willing to leave the modern core equipment, and again just buy Novafone out of competition for about $16-18 million dollars, ignoring loss of jobs and the network equipment valued at $9 million. This would put the value of Novafone, at worse case $25 million or ideal case $27 million. We agreed for a value of $24 million. A million less than the worse case buyout scenario,” says Muah.
He disclosed that LibTelCo negotiated to pay about $10 million in cash and assume the liabilities and assets on the balance sheet, which added up to about $14 million. Some of the liabilities, Muah says, were due to the Government of Liberia in regulatory and other fees. Even the cash payment was split in terms of payment 70% upfront and the remaining 30% paid over a 24-month period with a 6-month grace period.
Capacity without Infrastructure “So it became apparent that in the medium term we needed to find a means of distributing that capacity to generate revenue. The fiber optic requires much more funds to build, deploy or operationalize. In fact a recent World Bank study put the value to build the national fiber backbone infrastructure at $66 million dollars. The cost per user would be far more than what an average Liberian could afford with the current 52% poverty level. Therefore, a broader network was required to offload and sell the abundant capacity that LibTelCo owns in the ACE cable,” says Muah.
“That network today is Novafone,” Muah says with unabashed confidence. “We want to focus on the task at hand, expand the sector, and create more and more opportunities for Liberians to assure the development of a knowledge economy. Presently, we are building communities, for the first time in the last 10 years we will have a modern replacement for Sport Commission, and, mind you, not because we are a sports company but because we are Liberians and want the best for our country and our communities. Moreover we will have a modern library outfitted with computers and even a children reading corner, once more, not because it is our core business but how can we assure a knowledge market for our services when our people cannot have broader access to these services?” Muah reveals..
-Edited by Othello B. Garblah