The Hindu Business Line : Rewinding in time about a merger in reverse gear

The merger of BPL Mobile with Hutchison Essar's cellular services was the biggest merger and acquisition deal in the Indian telecom space till 2005 July.

Chennai , Aug. 5

Rewind to May 2005. That was when BPL Mobile's Chairman and Managing Director, Mr Rajeev Chandrasekhar, stated that the company was looking for a business partner who would stay and make necessary investments in future.

BPL's numbers were impressive. As on June 30, 2005, it had 26 lakh subscribers, including 12 lakh subscribers in Mumbai. The company had operations in three other circles, viz. Maharashtra, Tamil Nadu and Kerala.

Mid-July 2005 was a time of anticipation. BPL Mobile was in talks with a number of telecom players for an equity stake, including some foreign partners. Hutchison entered in talks to acquire BPL Mobile. Hutch had a subscriber base of 84 lakh, spread across 13 circles.

Reliance Info valuation

Going by the valuation of Reliance Infocomm, which had recently beenvalued at Rs 25,000 crore for 1.16 crore subscribers, it was expected that BPL Mobile, with 26.2 lakh subscribers, would be worth about Rs 5,500 crore.

However, there was one nagging question, since both Hutch and BPL were operating in the Mumbai circle. BPL had the second largest subscriber base in Mumbai and Hutch already topped the list in subscriber numbers. A regulatory stipulation of relevance was that a merged entity should not have a share of more than 67 per cent of that particular cellular market, both GSM (Global System for Mobile Communication) and CDMA (Code Division Multiple Access) services.

Industry pundits were quick to point out that if the proposed acquisition fructified, the combined subscriber base would be 27.84 lakh against the total GSM base of 41.76 lakh in Mumbai, working out to a 66.6 per cent share of the GSM market alone. Therefore, the regulatory ceiling was not likely to be breached, they said.

For Hutch, this was the second major attempt at acquisition. In 2004, it had tried to acquire Aircel's cellular operations in Chennai and Tamil Nadu circles for about Rs 1,600 crore, including Rs 400 crore of debt. The deal did not go through and both the companies mutually called off the agreement that they had signed. Maxis was to later acquire Aircel.

Dateline Bangalore. July 20, 2005. Mr Rajeev Chandrasekhar, along with his co-investors, entered into an agreement with Hutchison-Essar to sell their 64 per cent stake in the flagship BPL Communications Ltd in an-all cash deal with an enterprise valuation of over $1 billion (Rs 4,400 crore).

The merger of BPL Mobile with Hutchison Essar's cellular services was the biggest merger and acquisition deal in the Indian telecom space till date. The transaction, valued at approximately $400 per user, was being routed through an associate company of Essar Group, which would transfer the assets to Hutchison Essar subsequently. It was estimated that the combined entity would have annual revenues topping a billion dollars.

Mr Chandrasekhar resigned as the Chairman and CEO of BPL Mobile. And Essar was to conclude separate deals to buy out outstanding shareholders in BPL Communications, including foreign and domestic financial institutions and the patriarch of BPL Group, Mr T.P.G. Nambiar.

On September 26, 2005 Hutchison Essar Ltd entered into binding agreements for the acquisition of BPL Mobile Cellular and BPL Mobile Communications for $ 1.15 billion (Rs 5,060 crore).

`Defining acquisitions'

Mr Dennis Lui, Director of Hutchison Essar and Chief Executive Officer of Hutchison Telecommunications International Ltd, was quoted saying: "These are defining acquisitions for Hutchison Essar. By giving us the ability to complete our nationwide coverage, they position us to capitalise on the tremendous growth opportunities in India...

Clearly signals the commitment of its principal shareholders, Hutchison Telecom and Essar Group, to being a major force in shaping the mobile telecommunications scene in India."

By mid July 2006, three circles of BPL had already been merged. Only the Mumbai circle was awaiting intra-circle merger approvals, reported http://news.moneycontrol.com.

However, the rift was evident. Instead of cash, Essar was said to be demanding an equity stake for merging BPL into Hutchison, as per a report dated July 17 on the site.

"The row between Hutch and Essar became public when Essar contested Hutchison's selling stake to the Egyptian telecom company, Orascom," stated MoneyControl.

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