TRANING FOR SOMALI TELECOMMUNICATION MANAGERS; AFRALTI, 22 – 26 MARCH 2004 Restructuring Options Mergers, acquisition,

1. AFRALTI/ITU-BDT WORKSHOP TRANING FOR SOMALI TELECOMMUNICATION MANAGERS; AFRALTI, 22 – 26 MARCH 2004 Restructuring Options Mergers, acquisition, Jv etc. AFRALTI/ITU-BDT/HRD Restructuring Options

2. Current set up • From information – Somalia has 9 telecommunication companies each with its own gateway • This approach works well on the basis of the current political situation in the country. • May not be cost effective and efficient after the various factions reach political truce. AFRALTI/ITU-BDT/HRD Restructuring Options

3. Looking ahead • Important to start looking forward on the best direction for telecommunications sector • Retain status quo; • Restructure current; • Start up new entities; AFRALTI/ITU-BDT/HRD Restructuring Options

4. Internal Restructuring • The repositioning or reconfiguring of an organization from within the organization: • Normally done by existing management. • Ownership does not change. • Directed by shareholders or their agent e.g. Board • Mainly focus on improving performance of the organisation. • May result in charging labour strategies-outsourcing (revenue collection, Motor vehicle maintenance. AFRALTI/ITU-BDT/HRD Restructuring Options

5. Global trend • The global trend is the privatization of the sector with a strong independent regulatory body. AFRALTI/ITU-BDT/HRD Restructuring Options

6. Change in the political situation • Somalia already has private operators in place but maybe with limited geographical coverage. What happens after the political truce is in place? AFRALTI/ITU-BDT/HRD Restructuring Options

7. Options for the way forward • Allow each company to retain status quo and undertake expansion programs? • Some companies merging together? • Some companies acquiring others? • Any joint ventures to invest in the back bone or establish new companies? AFRALTI/ITU-BDT/HRD Restructuring Options

8. The way forward • Develop alliances among existing companies? • Strategic investors in telecoms? • Employee shareholding schemes? • Government establishing a national company? AFRALTI/ITU-BDT/HRD Restructuring Options

9. Internal Restructuring • Could result in divesture of some units (WS, security etc.) • Re-engineering of systems and processes for improved productivity or efficiency. • Re-organization on the basis of services/products - fixed and mobile networks. • Purpose of Internal restructuring • add value and attractiveness of the organisation. • To gain market share • Improve the image • To address commercial issues, profitability and new vision of company AFRALTI/ITU-BDT/HRD Restructuring Options

10. Internal Restructuring • Suitable if the management is ready for the following: • Acknowledge the changing environment in the country • Admit the challenges of network expansion and improving performance country wide. • Believe that they are able and commit themselves to dealing with both internal and external challenges . AFRALTI/ITU-BDT/HRD Restructuring Options

11. Internal Restructuring • Decide the role of each in brining up the desired change. • Conduct a proper assessment of the organizational performance in order to unearth all factors affecting performance within and without their control. • Decide what changes should be done. • Make the necessary changes happen by taking appropriate actions in the workplace. AFRALTI/ITU-BDT/HRD Restructuring Options

12. Management Contract • The bringing of external management with the expertise and experience in turning around poor performing organizations: • Ownership does not change. • Top management outsourced. • Contract for a specific period. • Management free paid by owner. • KPI and targets agreed with shareholders. AFRALTI/ITU-BDT/HRD Restructuring Options

13. Management Contract • This option aims at fast turn-around of the organization. • It can be part of an agreement after privatization/acquisition. • Restructuring can include all areas specified under internal restructuring. • This is a top down approach. • Internal politics a challenge (management viewed as forceful, arrogant, confrontational) • Needs proper selling and communication. • Can fail if not properly handled. AFRALTI/ITU-BDT/HRD Restructuring Options

14. WHEN TO CONTINUE INDEPENDENTLY Disadvantages: • Too many players for a small market. • High investment costs for each. • Unique regulatory problems. • Lack of capital to expand network. • Collapse of some companies AFRALTI/ITU-BDT/HRD Restructuring Options

15. WHEN TO CONTINUE INDEPENDENTLY(Cont’d..) • Fraudulent activities among players. • Complicated interconnection Agreements. Advantages • Good customer service as result of high competition. • No complications on ownership. AFRALTI/ITU-BDT/HRD Restructuring Options

16. When a political truce is realized the following could happen; • Survival of the fittest could occur. • Possible competition among companies • Collapse of some companies. • Weak being bought by the mighty. • External funding increased. • Normally leads to selling/buying fully or partially of companies. AFRALTI/ITU-BDT/HRD Restructuring Options

17. Partial Acquisition • Partial take over of ownership and control of one company by another: • Additional participation in ownership • Previous owners retain part of ownership. • Management control can be retained or changed. • Normally share capital paid in cash. • In telecom, normally between 30% - 51%. Count includes employee share ownership schemes, some shares. AFRALTI/ITU-BDT/HRD Restructuring Options

18. Full Acquisition • Ownership changes hands. • Previous owner completely goes to new owner • Normally paid in cash. • Takes place when owners decide to separate or exist for such business. • Advanced stage of privatizing a telecoms entity when Governments sells all shares. AFRALTI/ITU-BDT/HRD Restructuring Options

19. Reasons for Acquisition • Poor financial performance of the company • Failure to compete with other companies or new entrants • Some shareholders decision to move out of the business AFRALTI/ITU-BDT/HRD Restructuring Options

20. Mergers • This refers to one company taking over another or the coming together of two companies of nearly equal sizes. • The pre-merger owners have shares in the merged organizations. • Management positions shared by pre-merger managements. • Normally only share swaps rather than cash. AFRALTI/ITU-BDT/HRD Restructuring Options

21. Reasons for Mergers • In the event National Telecommunications, one operated as separate entity from External Services. • Two small operators merge with a view to compete effectively with another in terms of coverage and services. AFRALTI/ITU-BDT/HRD Restructuring Options

22. Reasons for mergers • Opportunity for cost cutting (have single management - operational costs). • Sharing of investment costs e.g. backbone network or gateway. • Sharing of operational costs through utilization of facilities. • Increase a market penetration of the telecoms services AFRALTI/ITU-BDT/HRD Restructuring Options

23. Demergers • This involves the break up one organizations into two or more separate entities. • Ownership can remain the same. • No cash exchanges hands. • Assets normally shared among the entities • Staff allocated according to type of business. • Corporate staff shared in agreed proportions. AFRALTI/ITU-BDT/HRD Restructuring Options

24. Demergers • When two competing business operate under one organization e.g. Postal and Telecommunication Services (fixed and mobile). • Conflict of interests e.g. incumbent operator also being responsible for Regulatory framework. • One business not as profitable as the other (postal & telecoms); (fixed & mobile telecoms services). AFRALTI/ITU-BDT/HRD Restructuring Options

25. Divestiture • When a company decides to do away with a specific or part of the business for commercial or strategic reason. • Doing away with non-core business e.g. security, revenue collection, workshop, printing, in a telecommunications environment. AFRALTI/ITU-BDT/HRD Restructuring Options

26. Reasons for Divestiture • Not meeting the projected growth, profit margin or return on capital. • Loss making. • A particular business becoming no longer profitable due to technological developments or acquisition of new technology AFRALTI/ITU-BDT/HRD Restructuring Options

27. Joint Ventures • Joint venture is a business partnership in which two or more companies agree to invest in a particular business. The companies can retain their identity or form a separate entity. AFRALTI/ITU-BDT/HRD Restructuring Options

28. Joint Ventures • Mozambique Telecoms (TDM) have a number of joint venture companies with foreign companies. • Telkom Kenya has a number of joint ventures. • Vodacom South Africa is a joint venture between SA Telecoms and two other investors. • MSI and Detecon formed a consortium to buy shares in TTCL-one with money and the other with expertise? AFRALTI/ITU-BDT/HRD Restructuring Options

29. Reasons for joint ventures • To spread risk. • Mainly for creating a strategic alliance. • To raise funds for the acquisition. AFRALTI/ITU-BDT/HRD Restructuring Options