On September 17, 2020, Topline Securities sent out a note to clients stating that several financial institutions had received a request for proposals from the Pakistan Telecommunications Company Ltd (PTCL) to serve as advisors on a possible merger and acquisition involving the company’s mobile subsidiary, Pakistan Telecommunications Mobile Ltd (PTML), better known by its consumer-facing brand name Ufone.
PTCL may be partially privatised with a 26% shareholding and management control in the hands of the Abu Dhabi-based Etisalat, but it is still mostly a state-owned company, with the government of Pakistan retaining a 62% stake.
That meant – as the federal law ministry was quick to point out that very same day, upon being reached for comment said that any such transaction would have to go through the Privatization Commission, which in turn requires the federal cabinet to approve of the decision.
The only transaction, the law ministry pointed out, that could be contemplated without those approvals would be a merger of Ufone into the main PTCL operations, a mostly pointless exercise, since Ufone is already a wholly owned subsidiary of PTCL anyway.
There might be some cost savings realised by merging the administrative functions of the two companies, but certainly not worth the kind of exercise that would involve hiring investment bankers to conduct the transaction.
The law ministry, of course, is right insofar as the law itself is concerned. But concerning the strategic decision, a merger into PTCL would be absolutely the wrong decision. The better decision would be an acquisition of Ufone out of PTCL, and into the waiting arms of China Mobile Pakistan Ltd, better known by its consumer brand name, Zong. (We will explain later why Zong is the only logical buyer.)
Yet it seems that the idea may not have been entirely discarded back then, and PTCL – which has been struggling to increase its revenues over the past seven years – may still be looking at mergers and acquisitions as a means of unlocking the value in its assets. As we examine in this article, that is likely to be a profitable decision, provided PTCL makes the right choice.
