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In summary if the rules stay the same, a direct bid/entry gives a better expected value of
S$71.80m but if bidding rules were changed, acquiring CloudNet delivers a better expected

value of S$206m before synergies. As we cannot quantify the probability of the rules changing
we could use Johnson, Whittington and Schole's SAF model to decide the better entry strategy:

Suitability: To innovate and deliver sustainable growth and value is one of our strategic
priorities. The global mobile market is flattening and experts predict it leveling by 2019 in
Chininsia. The valuation of CloudNet does not factor synergies so there is scope to consolidate

and secure cost synergies in the face of a flattening global market growth prospects and a
larger MCOM surely will also release financial synergies through better diversified earnings. It

will also secure market power synergies through a larger number of subscribers to negotiate big
data opportunities as well an even bigger bargaining power over suppliers (Appendix 4).
CloudNet fits in with our strengths as it is the 2nd biggest player in that market, they are the

technology leader, first to move to 4G and have successfully made the transition from voice to
internet and cloud-based services which we regard as the future (all nicely captured in our
SWOT Analysis -Appendix 3). Furthermore, they have other digital businesses valued at

S$3,353m (our 51% share of S$1710m div by 0.51) if we bid and lost. Acquiring them could
therefore strengthen our digital capability vital for our sustainable growth objective. Direct entry
gives us the flexibility to withdraw if we bid and lost, but it leaves us exposed to our same

revenue model, yet it is more likely to avoid the cultural clash, language barriers and integration
challenges an acquisition may entail. We however have international acquisition experience but

we still need to address the two other Critical Success Factors by end of 2016 to even be
eligible to bid: gearing which must not exceed 100% and depending on how we fund the Nakolia
fine we could exceed that and our 5year GAGR to 2014 for C02 emissions per square foot

which is 8% (see appendix 2 page 13 of case study) whereas 7% is the maximum.

Acceptability: Our shareholders are key players (Appendix 4 -Mendelow). We need to treat
the promised Free Cash flow data including the 51% offer price for CloudNet with professional
skepticism. It appears implausible for CloudNet with 63 million subscribers offering us 51% for

S$2700m whereas our 49% stake in JV-Cellular with a much lower 46 million subscribers (see
Appendix 5 of the case study) is being valued at S$90,985m (See Appendix 7 -Strategy 2). Our
recent JV-Cellular dividend of S$5008m is worth more than $2700m! If this data is correct, it

either reaffirms our conclusion that this market is not attractive or CloudNet has serious cost
control challenges. On the other hand, the Nakolia fine imposes a record loss and could see us
cut back dividends to the displeasure of our investors. An acquisition is a relatively faster growth

strategy so it could help us return to dividend payments by 2018 and help with our share price.

Developed by The CharterQuest Institute for 'The CFO Business Case Study Competition 2016'
www.charterquest.co.za | Email: thecfo@charterquest.co.za