Bahrain Telecommunications Co (Batelco) has agreed to buy Cable & Wireless Communications' assets in Monaco and some islands in a deal worth up to $1 billion, hoping growth overseas will offset falling revenue and market share at home.

Batelco, which is debt-free, has reported falling profit in nine of the past 10 quarters and this slump has led it to expand abroad, although its moves so far have been limited to Middle Eastern countries like Jordan, Yemen, Saudi Arabia and Kuwait.

For CWC, the deal will allow it to cut debt and focus on a smaller geographical area.

State-controlled Batelco will buy CWC's Monaco and Islands division, which own stakes in telecom operators in 12 markets including the Maldives, Channel Islands and the Seychelles, providing fixed-line, mobile, broadband and television services.

It will also buy a 25-percent shareholding in Compagnie Monagesque de Communications (CMC), which holds CWC's 55 percent interest in Monaco Telecom. Monaco Telecom in turn holds a 36.8 percent stake in Roshan, a mobile phone operator in Afghanistan.

The total price for these transactions is $680 million, Batelco said in a statement on Monday.

"Batelco's revenues and earnings are going down and the company is looking at cost reduction and restructuring to boost its margins," said a Middle East telecom analyst.

"Batelco wanted to buy brownfield operations (established businesses), it didn't want new licences, and there aren't many available at the $1 billion ticket range."

Reuters reported in September that the two companies were in talks regarding the Monaco and islands assets.

Batelco, which has a market value of $1.53 billion according to Reuters data, also entered into option agreements which will allow the Bahraini firm to buy a controlling interest in CWC's remaining 75-percent interest in CMC for an additional consideration of $345 million.

"We believe this is a good deal for CWC," Espírito Santo Investment Bank wrote in a research note, claiming it provided a 40 percent premium to current valuations.

"A deal like this has been perceived as difficult to execute due to the geographic spread of the assets. We are now more confident in management's ability to execute deals at good multiples."

CWC's shares were up 5.7 percent at 0910 GMT, after hitting a two-week high, while Batelco was unchanged.

REDUCING DEBT

In a separate statement, CWC said the Batelco deal will cut its debt to $937 million. The operator is also in talks to sell a majority stake in Macau's largest telecom group.

Batelco's home revenue may be in decline - it fell 12 percent in the nine months to Sept. 30, accounting for 60 percent of group earnings - but it is buying a CWC division facing similar difficulties.

Monaco and Islands had revenue of $586 million in the year ending March 31, down from $605 million a year earlier. Earnings before interest, tax, depreciation and amortisation (EBITDA) fell over the same period to $186 million from $207 million.

Monaco, the Maldives and Guernsey provided 90 percent of the unit's EBITDA in the previous financial year.

CWC's effective stake in its Monaco and Islands division is about 65 percent, the analyst said, meaning Batelco will be working with local shareholders in the various units.

"The key question is whether this deal will add incremental value for shareholders," added the Middle East telecoms analyst. "These new units may offer data revenue growth, but is the net earnings growing, and if yes, by how much?"