Bharti Airtel will acquire Tata Group's loss-making mobile telephony business, nearly for free, boosting its spectrum holding and raising subscriber base while saving the Tatas from the prospect of having to shut down the struggling unit.
As of end-March, Tata Teleservices and its unit had combined debt of Rs 34,089 crore ($5.24 billion) excluding sums due to the government for spectrum purchases, according to local ratings agency Crisil, which also said Tata Teleservices' net loss almost doubled in the year to March, to Rs 4,617 crore. Tatas will pay the rest. The sector has been in stress ever since Reliance Jio made a grand entry earlier this year with free voice calls and cheap data plans.
"This deal will bring in more stability for Airtel". That comes to around Rs 1500-2000 crore.
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Through the deal Bharti has the potential to tap almost 40 million Tata Tele customers.
Post the completion of this transaction, the employees of Tata will be separated on the basis of two businesses - CMB and EFL (Enterprise and Fixed Line and Broadband) - and will be moved to either of these businesses later on.
The company said that the Board had chose to appoint independent advisors to evaluate the strategic fit of the telco's enterprise business.
The struggling mobile consumer business, Agrawal said, "should have been restructured long back" and when new group chairman N Chandrasekaran took over in February, he reached out to people who could help out. Tata Group has the appetite to absorb some employees in Tata Communication, Tata Sky and their other operating companies too. Goldman Sachs has been advising both the companies on this transaction. In return, Airtel will have to assume only a small portion of the unpaid spectrum liability of Tata. Bharti Airtel will also bolster its strong spectrum footprint with the addition of 178.5 Megahertz spectrum of Tata telecom ventures and its fiber network.
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The proposed merger will include transfer of all the customers and assets of Tata CMB to Bharti Airtel, further augmenting Bharti Airtel's overall customer base and network.
"It will further strengthen our already solid portfolio and create substantial long-term value for our shareholders given the significant synergies", Bharti Airtel chairman Sunil Bharti Mittal said after announcement of the deal.
"We believe today's agreement is the best and most optimal solution for the Tata Group and its stakeholders".
The agreement, signed in 2008, failed to attract enough customers and Docomo triggered an option to sell its stake six years later after incurring losses.
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