Monrovia – One of the worst-kept secrets in Liberian business circles appear to be gaining traction amid reports that the Government of Liberia is on the verge of entering into the already tight cellular phone market.
FrontPageAfrica has learned from multiple sources that the Liberia Telecommunications Corporation (Libtelco) has sealed a takeover deal with one of the struggling cellular phone companies in Liberia, Novafone.
Actual Amount Unclear The deal, according to multiple sources is valued around US$30 million with the company reportedly to receive US$5 million up front, with the remaining balance expected to be paid to the company within a year. But Mr. Sebastian Muah, Managing Director of Libtelco when contacted by FrontPageAfrica said the amount being speculated is wrong. According to Mr. Muah, the deal is actually valued at around US$10 million with US$7 million being paid to the struggling cellular company upfront and the balance US$3 million set to be paid at a later date.
The deal comes just weeks after the acquisition of another local cellular phone company, Cellcom Liberia by Orange Group via its Orange Cote d’Ivoire
FrontPageAfrica has learned that once the deal is sealed, the National Social Security and Welfare Corporation (NASSCORP) will replace Ecobank as guarantor.
Only US$500,000 in Taxes According to knowledgeable sources close to the transaction, only US$500,000 will be paid as taxes to the government of Liberia. The taxes will be based upon a principle in finance known as capital gains. That is the tax you pay for selling an asset, and the actual amount is dependent on whether the gains are short or long term. In this case, long term capital gains taxes are due if the government can show that there has been an appreciation of the asset since Novafone purchased it four years ago. Since the details of the transaction are secret, many wonder about the transparency and economic probity involved. The financial valuation of Novafone is unclear, with challenges in determining the current market value based upon future cash flows or its maximum earnings potential. In the technology industry, companies sell at many multiple of their current earnings, since the market position of the company is important. But in a moribund economy such as Liberia, with Novafone only having a minute share of the market and with negative cash flows, it is troubling to some analysts that the Liberian government would purchase such an asset with guarantees from an SOE without much public debate or understanding. The investment can be classified as highly speculative. There is some upside, but clearly the downside is that Libtelco could lose all of its money in the transaction, which makes it troubling that a SOE like the National Social Security and Welfare Corporation, that has the fiduciary responsibility of holding money for Liberian current and future pensioners should be guaranteeing a highly speculative investment. The broad financial implications for this deal are troubling besides using government guarantees from a state owned entity (SOE) to buy a private asset in a transaction that is not technically arms-length amid concerns that some hidden hands may stand to benefit from the deal with substantial equity in Novafone, or minimally a close business associate, Mr. George Abi Jaoudi is the principle shareholder. Source: 4 Banks Guaranteeing Sale The deal, according to sources is being financed by four local banks IB, LBDI, Ecobank and GT Bank which will be providing guarantee for the purchase. Mr. Abi Jaoudi, one of the leading Lebanese businessmen in Liberia who is believed to be the major shareholder in Novafone, has reportedly been struggling for months now to offload the struggling company but has been unsuccessful in finding suitors. Lonestarcell/MTN reportedly was at one point close to sealing a deal with Novafone but the deal reportedly fell through the cracks after Lonestar rejected the offer and said it was unwilling to pay an extra US$3million for the switch as part of the package. FrontPageAfrica has learned that once the deal is completed, Libtelco will then offload 60 percent of the deal to Vodafone, a British multinational telecommunications company operating currently in 26 countries and has partner networks in over 50 additional countries. Mr. Muah explained that the balance sheet of the company will remain as is and the liabilities and receivables on the balance sheet will be assumed as part of the deal which essentially would have been the same as an going concern if the company continued to operate as is. LoneStar Bid Rejection Explained But many industry analysts are wondering why the government and Libtelco are settling for less when Lonestar had a reported US$18 million on the table? But Muah explained that the deal is straight-forward. “Our understanding of the Lonestar/MTN deal, the core network equipment was not part of the deal and 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 went for $24 million - million less than the worst case.” According to Muah, the talks and negotiation on the acquisition was initiated since last October when news that its competitor Lonestar/MTN embarked on similar effort to buy Novafone out of the market and make the Liberian market a two-player market. FrontPageAfrica has learned that one of the sticking points Novafone encountered in trying to sell is that Novafone insisted that whoever takes over the company pay upfront for the liabilities on their books and that they would go pay their debtors our proposition was leave the liabilities and we will only pay you the equity portion and continue to run the company. Mr. Muah indicated that the Lonestar/MTN version of the transaction was sectorally contractionary. “The transaction would have resulted immediately with a net loss of jobs, over 100 Liberians during these difficult times in our post-Ebola recovery process.” He said additionally, nationally security was another issue, citing the situation when Lonestar/MTN shut down its network during a critical time during the 2011 elections. “We cannot entrust the security of the country into the hands of private actors seeking to maximize profit at all costs” he averred. According to Mr. Muah, Libtelco negotiated to pay about US$10 million in cash and assume the liabilities and assets on the balance sheet, which added up to about $14 million. He noted that some of the liabilities 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. “I am amazed at the level of political wrangling that is seeping in a purely commercial matter, such that a major competitor is resulting to mischievous tactics and rhetoric that looks like sour grapes.” A source privy to the discussions surrounding the deal says by giving the new operators more capacity and bandwidth to meet the demands, it would also lead to the cutting of cost on expat management. A Clean Deal in Play, says Muah But Muah insists that the deal, still in negotiations, is clean. “This was a clean and fair deal. Lone star just lost in the commercial bid. Our lawyers and accountants on this were Negbalee Warner and Baker Tilly. They did a very thorough work.” Mr. Muah further outlined that the 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. Mr. Muah highlighted that at no point in the transaction any compromise was made to short-change the Government or the People of Liberia.
“We did our homework, and while not all of what one does is perfect, I believe I put in place a team of competent Liberian experts to help me review and meet my objectives of going against a corporation, that has yet to show true value to Liberians, in an acquisition battle that they have lost.”