December 14, 2005

Vodafone just won an auction to purchase Turkey's second largest wireless operator Telsim for $4.55 billion.

"With a larger population than every European country except Germany, and [Telsim's] penetration level of approximately 53 percent, the Turkish market represents a major growth opportunity," said Arun Sarin, chief executive of Vodafone.

Telsim has about nine million customers in a country of 72 million people. The company was part of the Uzan Group, which had its assets seized by the Turkish government last year after criminal investigations of the Uzan family.

The acquisition of the mobile company from the Turkish Savings Deposit and Investment Fund (SDIF) puts Vodafone in control of a company with 43 percent revenue growth in the first seven months of 2005 compared with the same period in 2004.

Telsim had 2.8 million net added subscribers for the 12 months ended June 30, 2005.

However, Vodafone expects that it will take an investment of about $1 billion in the short term to improve Telsim, which Vodafone says "has historically been under-managed and suffered from under-investment in its network and customer propositions."

Vodafone expects Telsim to "make net losses in the short to medium term" and that the deal will "be dilutive to adjusted earnings per share" for a time, but ultimately that the acquisition will increase Vodafone's revenue and earnings before interest, taxes, depreciation and amortization growth profile.

The Telsim deal will require approval by the SDIF's board, as well as Turkish regulatory authorities. According to a statement from Vodafone, the company "is not acquiring Telsim's liabilities, including those related to Motorola and Nokia, other than certain minor employee-related liabilities."

According to Nokia, Telsim had defaulted on a loan for network equipment and Nokia had an agreement with the SDIF to receive 7.5 percent of Telsim's purchase price.

Motorola had similar problems with the company and also will be repaid when Telsim is sold.

Vodafone expects the transaction to close in the first quarter of 2006.

Source: RCR