Birlas to buy out Tatas from Idea for Rs 4406 cr

Posted on | April 12, 2006 |

The Aditya Birla group on Monday announced its intention to acquire the Tata group’s 48.14% stake in India’s fifth-largest operator Idea Cellular. The Aditya Birla group will hold 98.3% after the acquisition.

The deal estimates Idea to have an equity value of about Rs 9,000 crore. This is a sharp jump from the valuation of last September, during the Cingular buyout, when the company was given an equity value of just Rs 3,740 crore.

With the acquisition of Tata shares, Birlas will now own the entire company, barring the 1.7% owned by C Sivasankaran who has agreed to sell his equity to an unnamed foreign institutional investor for about Rs 150 crore.

Mr Sivasankaran has 3,84,56,441 shares in Idea. At a price of Rs 39 per share he will get Rs 149.98 crore. With this, Mr Sivasankaran will completely exit the GSM business. Earlier, he sold Aircel, which was an operator in Chennai and Tamil Nadu, to Malaysia-based Maxis. Now, his interest remains only in CDMA services. He recently bought 9.99% equity in Tata Teleservices (TTSL).

The value on each subscriber is on the lower side compared with figures for listed firms and in deals of some unlisted companies.

The enterprise value per subscriber implicit in the deal appears to be Rs 18,000 or $400. This is the lowest among six companies, three listed and as many unlisted, for which figures are calculated.

Bharti Televentures, the largest listed telecom company, has a valuation of $860 per subscriber - more than double the figure that Monday’s Idea deal threw up. Most other companies are stacked up in the range of $450-$550 per subscriber.

Only recently did the fight between Idea’s two promoters, the Tatas and Birlas, become public when Birlas wrote to the government seeking direction for ouster of Tatas from the JV on the grounds that the latter had violated the telecom licensing conditions.

The Birlas had pointed out that the telecom policy restricted cross ownership so that competition is not compromised. The Tata group, however, has cross ownership in 11 service areas, where it owns 48.15% equity in Idea and about 80% equity in Tata Teleservices.

Sources said that an internal committee comprising top honchos of Tata group deliberated on the issue earlier this week and then submitted a note to Rata Tata two days ago.

Its good news for Idea’s investors. This is because Idea was among the first companies that had planned to go public. But the IPO plans are said to have suffered due to the problems between its promoters.

Idea has debt of about $1billion and needs fresh investments to not only reduce the debt-equity ratio, but also to expand and grow in an intensely competitive marketplace.

It is now felt, that once Idea completes the formalities of the deal and the planned sale of equity to financial investors, it might tap the capital markets with an IPO of fresh equity shares and an offer for sale of some existing promoter’s equity.

With the Tatas out of the picture now, it clears the way for Idea’s entry into Mumbai.

Idea operates services in Delhi, Gujarat, Maharashtra, Andhra Pradesh, Kerala, Haryana, UP (West) and Madhya Pradesh. It also has licence for operating services in UP (East), Rajasthan and Himachal Pradesh.

Source: ET

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