France's Orange has revealed it is in talks with Bharti Airtel about acquiring the Indian operator's businesses in the African markets of Burkina Faso, Chad, Congo Brazzaville and Sierra Leone.
The announcement follows long-running speculation about a possible deal between the two operators and comes soon after Orange (NYSE: FTE) unveiled a target of growing sales across its African and Middle Eastern markets by 20% between now and 2018. (See Orange Aims for 20% Sales Growth in Africa, Orange to Be All-IP by 2020, Says AMEA Boss and Eurobites: Orange Looks to North Africa.)
It also comes shortly after Orange placed all of its regional operations under one holding company to simplify the management structure and support dealings with prospective "strategic and financial partners," according to Ramon Fernandez, Orange's chief financial officer.
Speaking at a press event in London earlier this month, Fernandez indicated the operator was considering takeover activity in Africa but refused at the time to be drawn on his interest in a deal with Bharti Airtel Ltd. (Mumbai: BHARTIARTL).
"We're in a position to consider adding assets on a selective basis if we find the right price and the right complementarity with our operations," Fernandez told reporters. "West Africa and Central Africa are places where we are quite strong."
According to its website, the French operator maintains networks in 18 countries in Africa and the Middle East but lacks a presence in any of the four markets where Bharti Airtel is looking to sell assets.
Orange has provided few details about its ongoing negotiations with the Indian company but says it has entered into an "exclusive agreement" regarding a possible transaction.
While subscriber growth has slowed markedly in many African markets, Orange has expressed optimism that it can boost revenues from the sale of mobile data, B2B and mobile money services.
During the operator's recent press briefing in London, Marc Rennard, Orange's Africa and Middle East boss, claimed that mobile data revenues excluding SMS have been growing at an annual rate of 40%.
A deal with Bharti Airtel could also create opportunities to boost African margins through new efficiency measures.
With the aim of reducing indirect costs, Orange recently revealed plans to monitor networks across ten of its markets in West and Central Africa from facilities in Dakar (Senegal) and Abidjan (Cote d'Ivoire).
That scheme could be extended to include four additional markets should Orange finalize a deal with Bharti Airtel.
Thanks largely to the region's low labor costs, Orange currently boasts an EBITDA margin of about 33% for its African and Middle Eastern operations, compared with one of 31% for the Group as a whole.
The French incumbent reported sales of about €1.1 billion ($1.2 billion) in the region for the January-to-March quarter -- about 11.6% of total revenues and 6.8% more than in the same period of 2014.
Today's news adds to the impression that Orange may be gravitating away from East Africa while looking to strengthen and expand its presence in francophone parts of the continent.
Orange agreed to sell its business in Uganda to Africell, another pan-African player, in May last year and is thought to be weighing its options in Kenya.
"The regulatory situation is not favorable or acceptable," said Rennard during Orange's London press briefing when asked about the current situation in Kenya. "You have dominant player in the form of Safaricom and others don't make a profit."
— Iain Morris, , News Editor, Light Reading