Deal Broker Elaborates on Merger of Two Iranian ISPs

EghtesadOnline: As newcomers to the Iranian equity market, Internet service providers have garnered mounting enthusiasm among traders as one of the promising sectors of the economy.

News ID: ۷۸۰۲۶۶

05 November 2017

Accordingly, the latest merger agreement between two of the largest ISPs was the market’s highlight in the past week.

Signed on Oct. 29, the agreement entails HiWeb merging with its rival Pars Online through absorption of all of the latter’s shares. The two companies will from now on operate under the HiWeb brand.

CEO of Kian Capital Management Majid Zamani, whose firm handled the deal’s structuring and contract negotiation, shared the details of the merger in a phone interview with Financial Tribune.

“All of Pars Online’s four subsidiary companies operating in the field of ADSL and data center services have been purchased by HiWeb,” Zamani said.

According to Kian’s website, Zamani is an investment banker with over 15 years of international business experience. After founding and nurturing Kardan Investment Bank, he moved on to establish Kian. He is a former World Bank consultant and has worked for AIG in New York and Petroleum Finance Corporation in Washington DC.

“Structuring the deal proved to be a complicated task,” Zamani said, as there is no legal guideline regarding mergers in Iran’s business law.

The Iranian Business Act has not been updated since it was first devised in 1932.

“As per the agreement, Pars Online’s shareholders will acquire a controlling stake in HiWeb. The rest of the sum will be paid in installments, alongside a limited amount of cash,” he said, adding that the acquired shares will exceed 10% and give Pars Online’s stakeholders more than one seat on the board.

The investment banker did not reveal the deal’s financial details, emphasizing that they have been shared with the Securities and Exchange Organization and are expected to be publicized by the organization.

HiWeb’s shares on Tehran Stock Exchange have been frozen by market regulators since the day the deal was signed.

SEO’s measure could be due to the fact that the agreement’s finalization depends on Communications Regulatory Authority’s approval, a process that could take up to a month, according to details published in a letter by HiWeb. The letter adds that HiWeb will publicize “the financial impacts of the deal” once it is finalized.

Zamani, however, believes that there is no proper reasoning for keeping the ticker frozen, as all the available data have been sent to SEO and it is the investors’ right to have access to trading, especially following the significant developments.

The 4-trillion-rial ($100 million) HiWeb floated 10% of its shares in an initial public offering on TSE back on Sept. 13 with the price of each share discovered at 4,795 rials.

The ISP signed a non-equity “partner market agreement” with Britain’s biggest mobile operator Vodafone in October. Vodafone is a multinational telecoms company based in London.

Asked about Kian’s other undertakings, Zamani said his firm is currently handling five other deals in the fields of pharmaceuticals, cosmetics and toiletries, IT and petrochemicals. The deals’ total value reaches up to $500-600 million, two of which include foreign investors.

Three-Way Merger With AsiaTech Cancelled

The HiWeb merger was in part meant to give ISPs an edge in competing with Iran’s largest fixed landline service provider–the state-backed Telecommunications Company of Iran.

To create an even bigger challenger to TCI, discussions were held over the possibility of a three-way tie-up with another large-scale ISP, AsiaTech.

Just a day after the HiWeb-Pars Online agreement was signed, AsiaTech CEO Ali Yousefizad announced that “AsiaTech and HiWeb have held preliminary talks on a possible merger”, stressing that the results will be announced in 48 hours.

Telecoms Minister Mohammad Javad Azari-Jahromi also supported the measure and said, “Mergers and acquisitions between local ISPs will enable private businesses to cut costs, raise funds and compete with TCI.”

He also suggested that the powerful Communications Regulatory Authority may provide the ISPs with M&A incentives, but did not provide any details.

However, the talks eventually proved to be unsuccessful, as HiWeb and AsiaTech failed to reach an agreement by the end of the week.

According to Zamani, what thwarted a potential agreement was lack of consensus on the deal’s structure, rather than the financial details.

“AsiaTech was already preparing to have its [initial public] offering and some of its investors believed there was no compelling reason to consider a merger at this juncture,“ he said, adding that there were also serious doubts about the “quality” of AsiaTech’s assets in the first place.

Zamani also expects AsiaTech’s IPO, which is slated for this week, to be delayed, since it will have to compete with a reinvigorated HiWeb tapping into Pars Online’s profits while grappling with 2.2 trillion rials ($550 million) of debt and underperforming assets.