"Reliance could offer MTN right connection"

Amy Yee, Joe Leahy in New Delhi, Andrew Parker in London

After Bharti Airtel hung up on South African telecommunications group MTN on Saturday, few industry observers were surprised that rival Reliance Communications was lurking in the background.

Reliance, India 's second-largest mobile phone operator, on Monday announced it would be holding six weeks of exclusive talks with MTN over a potential merger to create one of the leading telecoms groups in emerging markets. "This is a formidable arrangement putting these two together," said one person close to the deal. "You have a very strong emerging markets connection."

Like Bharti, India 's largest mobile operator, Reliance has global aspirations. After losing last year's keenly-contested $11bn takeover of Hutchison Essar, India 's fourth-largest mobile operator, to Vodafone of the UK, Reliance needs to raise its game or risk becoming an also-ran.

A combination of Reliance and MTN could put the merged entity into the top tier of telecoms groups, which include China Mobile, the world's largest mobile operator by market capitalisation, and Vodafone, the largest wireless company by revenue.

Bharti blamed MTN for the sudden collapse of talks that began early this month. People close to the situation said Bharti proposed buying MTN at R165-175 per share, which would have valued the Johannesburg listed company at $41bn-$44bn. It would have set a record for a cross border acquisition by an Indian company.

However, after intense negotiations, MTN began to worry that a takeover of one of South Africa's most successful post-apartheid companies would be politically unacceptable. It proposed that Bharti's main shareholders instead swap their stakes for stock in MTN. This would have made Bharti an MTN subsidiary - a proposal the Indian company said on Saturday would have "severely compromised" it.

Reliance first made contact with MTN late last year but talks fizzled out after it ran into the same issues that rattled Bharti this time, said people familiar with the situation.

But some industry observers questioned whether Reliance could achieve what Bharti could not.

Reliance, with 48m mobile customers and a market value of $28bn, is far smaller than Bharti, which claims 64m wireless customers and a market capitalisation of $38bn.

Sunil Bharti Mittal, the charismatic founder and chairman of Bharti, is known for his collaborative style.

He "is the only person who had the chemistry to pull off" a deal with MTN, said an executive at a rival Indian telecoms company.

Anil Ambani, the billionaire chairman of Reliance, has a more aggressive and controlling management approach, added the executive.

Reliance has been steadily venturing overseas. On Monday it announced that a subsidiary would buy Vanco, the troubled UK telecoms company.

What Reliance brings to the table with MTN is a greater eagerness to make a splash.

People familiar with the deal talks said that Mr Ambani is comfortable with MTN's preferred model for the merger. The talks are focused on a reverse take-over under which Mr Ambani could swap most or all of his 66 per cent stake in Reliance for a stake in MTN of up to 34.9 per cent.

Under Indian rules, MTN would also have to make a tender offer for a further 20 per cent of Reliance.

That arrangement would be acceptable to Mr Ambani because he would end up by far the largest single shareholder in the enlarged group - the existing leading investors in the South African company would collectively hold only 23-24 per cent after the deal.

Mr Mittal would not have enjoyed the same comfort for two reasons.

First his family owns a 26 per cent stake in Bharti Airtel, according to analysts at JPMorgan, and would have ended up with a smaller stake in the enlarged group.

He also would have had trouble with Indian rules restricting foreign ownership to 74 per cent of telecoms companies. Bharti is already 65 per cent foreign-owned compared with just 10 per cent of Reliance.

However, some industry observers are not convinced of the merits of a merger between Reliance and MTN. They said a deal could distract Reliance from plans to upgrade its mobile network in India , the world's second fastest growing wireless market.

"HUNGRY FOR MORE"

Deal or no deal, India Inc is in the news
M&M, RIL,Tata, Infosys & ADAG go shopping for big-ticket M&As
Dheeraj Tiwari & Shantanu Nandan Sharma NEW DELHI

HATS off to that seer who said it’s participation, and not competition, that matters. India Inc, never lacking in sportsman spirit, seems to have taken this adage quite seriously. Any big ticket acquisition, to hell with the results, and India Inc is in the ring. And when the dust settles on the deal, it may not even come a close third, but it does hog the limelight until the ink is on the paper. So, it’s not only Sunil Bharti Mittal, whose African safari went horribly wrong for acquiring MTN, the list of companies which have been in news because they were said to be sitting on a pile of cash and ready to shop around, includes all the top notch corporate houses such as Mahindra & Mahindra, Reliance Industries, Tata group, Infosys and ADAG. However, when these barons go window shopping it not only hits the headlines but also inflates their brand balloon.

Sample this: during FY08, there were at least nine deals in which the Mahindra group either lost the bid or was rumoured to be in the fray. For ADAG, there were eight such deals. An analysis of data from Thomson Reuters, a leading research and analysis firm, and various media reports of the last fiscal, shows that the strike rate in clinching deals was 30% for Mahindra group and 33% for Bajaj group (Rahul Bajaj camp). The strike rate, as calculated by SundayET, is based on the number of successful deals out of the total attempts that a company made. For example, software major Infosys was rumoured to be in fray for three deals during the last fiscal, but no deal was finally clinched, registering a zero percent strike rate.

Take the case of Mahindra group, which in the last fiscal, made 13 attempts to seal various M&A deals, but the rate of failure was as high as 70%. The company which failed to impress the management of Jaguar and Land Rover, was also rumoured to be planning to acquire Volvo Car Sint-Truiden, a Belgium-based manufacturer and wholesaler of automotive parts and engines, and an undisclosed minority stake in Kinetic Motor, according to Thomson Reuters data.

Even the Tata group, which has been the trail-blazer of Indian Inc’s global pursuits, failed to clinch some major deals. However, it did get a lot of hits as well. The Group’s success rate in finalising deals during the last fiscal, however, stood at a robust 68%, the highest among major Indian companies, according to SundayET’s analysis.

Among deals announced or rumoured during FY08, 316 are still pending. There were another 54 cases during the last fiscal where Indian companies evinced interest to acquire companies, but then these were only restricted to newspaper columns and TV bytes. Under pressure from investors
THE SundayET analysis took into account as many as 1,250 companies but only crunched data of the top Indian corporate houses.

The Anil Dhirubhai Ambani Group (ADAG), which struck at least 12 major deals during the last fiscal, however, failed in nine attempts, registering a healthy 57% strike rate. According to media reports, ADAG evinced interest in acquiring PT Berau Coal, one of the largest thermal coal firms in Indonesia, home video major ULTRA, and US-based Sony Online Entertainment, but there were no headways in those.

Same for the big brother. Reliance Industries has been in advanced talks with France’s retail major Carrefour. The company was also interested in a Kenyan refinery, but the deal was finally clinched by Essar Energy Overseas. The latest buzz doing the rounds is its ongoing negotiations with the US oil major Chevron Corp.

The theme of Sunil Bharti Mittal’s inorganic growth is no different. MTN is not the only deal which never happened. Similar roadblocks emerged when they attempted to acquire a stake in Big Apple — the Delhi-based supermarket chain and Telkom Kenya. Their success rate is a low 40%.

Rohit Kapur, head, corporate finance, KPMG said that sometimes companies are under immense pressure not only from their investors but also because their rival companies have made some big ticket acquisitions. “The investors may like to know what is the future growth plan. Remember that some of these companies are sitting on a lot of cash and they try to convince their investors that they are open to both organic and inorganic growth. With names of their company floated, it provides their investors a comfort that their company is also doing well,” he said.

However, at times, some companies try to gather competitive intelligence by floating their names and this happens more so whenever there is a trophy collection on the blocks. “It’s more of a curiosity factor, trying to get a sense of what a certain asset valuation is and other dynamics involved,” Mr Kapur said.

Sunil Sinha, senior economist, CRISIL argued that the names of all companies shouldn’t be taken as serious contenders unless there’s any formal announcement. But some companies do the same to test waters. “Take the case of Tata, they were rebuffed by Four Seasons, so companies would like to a dip test whether the current management is not averse to them or will it be a hostile takeover. As we’ve seen in the case of Arcelor Mittal. Look at the Yahoo, Microsoft talks, when Google name did the rounds, the equations changed,” he said.

Sinha further said that the name of more companies would do the rounds, because Indian corporate have global ambitions and high liquidity. “Even if your name figures whenever there is a big ticket acquisition, it shows that you’ve arrived on global scene,” he adds.

CG Srividya, partner, specialist advisory services, Grant Thornton said that it is not just about clinching the deal, but to find the right fit at the right price. “The fit and the price have to be right for the parties on both sides of the table and are based on synergies, matching of mindsets, work culture and several other factors besides the purchase consideration (which could be cash or stock),” he said.

"Sterlite acquires Asarco for record $2.6 billion"

Biggest overseas deal this yr; Vedanta Group co to become third largest miner
Our Bureau MUMBAI


Sterlite Industries (India) on Saturday announced the acquisition of Asarco Llc, a Tucson-based copper mining, smelting and refining company, for $2.6 billion in cash. This is the largest overseas purchase by an Indian company this year, overtaking Tata Motors’ acquisition of the marquee brands, Jaguar and Land Rover, from Ford for $2.3 billion. Post the deal, Sterlite will become the world’s third largest copper miner with a combined capacity of 650,000 tonnes a year.

Sterlite Industries, a part of the Vedanta group, signed a definitive agreement with Asarco to this effect on Saturday morning. The transaction, expected to be funded by internal accruals and borrowing, is subject to US Bankruptcy Court approval. Sterlite expects to conclude the formalities by September-October.

“We are delighted to have reached an agreement on this important acquisition, which is a significant milestone for our group,“ said Anil Agarwal, chairman of Sterlite Industries, which is now the world’s fifth largest copper miner with 400,000 tonnes capacity a year. Asarco is a logical and strategic fit with Sterlite’s existing copper business and is expected to create significant long-term value for all stakeholders through leveraging its proven operational and project skills to evolve and optimise Asarco’s mines and plants; access to attractive mining assets with long life; geographic diversification in the North American market; and stable operating and financial platform for Asarco, said Mr Agarwal.

He did not mention the exact amount of money it needs to borrow to fund the deal. He said Sterlite is a near zero debt company and therefore funding will be no issue. Sterlite has reserves of nearly $4.5 billion, he told ETover the phone from New York.
Sterlite has agreed to pay four times of EVA/EBITDA for the transaction which is amongst the lowest in the global mining space. Last year, Teckcominco bought Aur for a multiple of 6.6 times while Nordduetsche Affineire paid a multiple of 6.9 times for acquiring Cumiero. Also, Sterlite has a track record of turning companies around. The list includes Hindustan Zinc, Balco, Malco and assets in Zambia. The only exception is India Foils which it failed to put back on track and therefore sold it. Mr Agarwal said Asarco is in good financial position with an EBITDA of $650 million in 2007.

Asarco, formerly known as American Smelting and Refining Company, was put on the block after its creditors and trade unions filed for bankruptcy nearly a year ago.

Lehman Brothers acted as financial adviser and Baker Botts acted as legal adviser to Asarco in this transaction. Sterlite, which emerged as the highest bidder among many suitors, will only acquire the assets and absorb the “operating liabilities” and not the legacy liabilities for asbestos and environmental claims. Asarco’s operating liabilities are marginal, Sterlite officials said.

All bids were submitted in late April and the selection of the highest best bid occurred on May 23. Then the Sterlite team was called for further discussions. The Sterlite team was represented by Anil Agarwal, CFO Tarun Jain and representatives of ABN AMRO Corporate Finance, its financial adviser, and Shearman & Sterling, its legal adviser. The selection process followed a procedure supported by Asarco’s creditors and approved by the US Bankruptcy Court.

Sterlite said the copper production can be expanded, post the conclusion of the deal. The assets to be acquired include three openpit copper mines and a copper smelter in Arizona, US and a copper refinery, rod and cake plant and precious metals plant in Texas, US.

Asarco’s president and CEO Joseph F Lapinsky said: “Reaching this pact with a worldclass mining company is a giant step forward in our quest to successfully emerge from Chapter 11,” he said.

"Times Group buys UK’s Virgin Radio for Rs 448cr"

Sudeshna Sen LONDON

IN ITS first-ever overseas acquisition in the media space, The Times Group has acquired Virgin Radio Holdings Ltd and its subsidiaries in the UK from SMG Plc for a consideration of £53.2 million (around Rs 448.4 crore)

Virgin Radio, a music channel which operates under an FM licence in London and an AM licence in the rest of the UK, was acquired by TIML Golden Square Ltd, a wholly-owned subsidiary of Bennett Coleman & Company Ltd (BCCL), owners of leading media brands in India such as The Times of India and The Economic Times.

Virgin Radio, after a period of transition, will not retail the Virgin brand — giving it the freedom to develop its own mix of music and entertainment, without the branding parameters outlined by Virgin Enterprises. TIML, which will manage the station along with Irish company Absolute Radio, will invest £15 million in developing and re-launching the brand over the next few months. Virgin Enterprises will retain the brand for its own global radio strategy.

The acquisition is being seen as a key entry point into the vibrant British radio market as the new owners have closed the deal at almost a quarter of what SMG paid in 2000 — £225 million — to acquire the radio station. “This decision was arrived at collectively only after we all carefully considered the various options. I wish TIML all the best with their new radio brand,” said Richard Branson of the Virgin Group.

“I believe that £53.2 million represents a sound price for Virgin Radio and a good deal for SMG shareholders. I would like to wish the management team and all the employees of Virgin Radio the best of luck for the future and I am sure the business will continue to prosper under TIML’s ownership,” said Rob Woodward, chief executive of SMG Plc.

By autumn this year, the new owners will develop, working with Absolute Radio, a new music and entertainment brand, building on the work already achieved by the award-winning team at Golden Square.

“Now is a great period to be entering the UK market. We are pleased to be working with a great team of UK-based radio experts, Absolute Radio,” said A P Parigi, chief executive of TIML.

The BCCL group is India’s leading media conglomerate and owns a bouquet of media brands, with a large presence in radio, television, internet and entertainment.

"It’s Talk Time: RCom and MTN scribble share-swap fineprint"

Kausik Datta and Bodhisatva Ganguli MUMBAI


RELIANCE Communications’ (RCom) Indian minority shareholders may get the option to swap their shares with MTN at the same rate as its promoters, the Anil Dhirubhai Ambani Group (ADAG). Minority shareholders will of course have the conventional option of encashing their holding in RCom by participating in the open offer that may be launched by MTN.

This is one of the possibilities that RCom is weighing as it tries to strike a deal with MTN which, if successful, will create an entity with combined market capitalisation of $66 billion and with a presence in 23 countries. This is in line with RBI’s norms which allow spending of $50,000 by an individual in foreign markets a year. Indian minority shareholders hold 23% in RCom while foreign investors control of 11% stake. ADAG holds 66% equity in the country’s second largest private wireless telephone company.

Sources close to the development said a clearer picture of the deal has emerged in the past four days after the parties engaged in hectic parleys. MTN, sources say, they would sign an agreement to buy up to 74% in RCom — the maximum permissible foreign equity holding in an Indian telecom company. The proposed transaction involves two steps. The first step would a mandatory open offer for 20% for the minority shareholders. In the next stage, depending on the response to the open offer, Mr Ambani will swap his shares in RCom for MTN shares, enabling the latter to reach 74%.

This can be better explained with an example. Consider two extreme cases — one where the entire lot of foreign investors of RCom (11%) opt for the MTN open offer, and two when they stay away from it but the offer receives subscriptions from the Indian minority shareholders. In the first case, MTN’s holding in RCom, post the open offer, will be 11% and therefore, Mr Ambani will need to swap 63% of his RCom stake in MTN shares to enable the latter to reach the 74% FDI limit. The second scenario would help MTN end up with 20% stake, post the offer, while the existing foreign investors would continue to hold 11%. In this case Mr Ambani would exchange his 43% stake in RCom to get MTN shares. If there is no response to the open offer Mr Ambani would also swap a 63% stake in RCom to enable the latter reach 74%. In other words, MTN would end up getting between 63% and 74% of RCom equity, including the open offer, and Mr Ambani would give away anything between 43% and 63% stake in RCom to get MTN shares.

Ambani may pick up 34% in MTN

DEPENDING on the share-swap ratio, Mr Ambani is expected to pick up a 28-34% stake in MTN. But he would be by far be the single largest shareholder in MTN. He would not cross the 35% mark as Johannesburg’s rules demand an open offer beyond this figure.

Newshelf 664 is the largest shareholder of MTN with a 13.1% stake. The Beirut-based Mikati family holds 10.2% while PIC has a 9.7% stake. The rest 67.1% is widely held. Post the deal, the holding of these shareholders will come down as the equity capital of MTN will expand on account of issuance of new shares to the RCom shareholders and ADAG.

Some people feel that the share swap option may not elicit a good response from Indian minority shareholders. “It is difficult to expect many takers for the share swap offer. And frankly speaking, there is no reason why a minority shareholder should be attracted to trade on the Johannesburg Stock Exchange where MTN is listed,” said a banker. Some others, however, believe that the option may lure some investors. “Minority shareholders have invested in RCom because they believe in the company’s promoters. Now one does not know whether they would like to tag along with the promoters to Jo’burg as well,” said an analyst.

However, those who are not interested in the share swap would have the liberty to sell their shares in the MTN open offer. MTN will issue fresh shares to those who want to swap their holding in RCom, including Mr Ambani. The broad contours of the deal thus indicate that Mr Ambani will emerge as the largest shareholder of MTN and RCom will be it’s subsidiary , as reported in ET earlier.