The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
Sharad Gupta, MBA 2014-16, Vinod Gupta School of Management, IIT Kharagpur
Business Standard reported on 11th March, 2015, in article “Telenor, Tata Tele merger talks reach final stages”, about merger talks between Tata Tele and Norway’s Telenor of there wireless telephonic operations in India. It is said, as per the valuation calculations of both the firms, Tata Tele will be a minority stakeholder in this merger deal. All the operations will be majorly controlled by Telenor.
Final Agreement is planned to be signed in next few days in London where all the senior officials of both the firms will be meeting to discuss the partnership agreement. An inside source also reported that they will be declaring about the merger soon, after the declaration of Government policy on Telecom sector after the of this season by Finance Minister.
The Tatas have invested Rs 26,000 crore in Tata Teleservices’ equity; the company has debt of Rs 24,000 crore. The Tata group has sought the government’s permission to buy back NTT DOCOMO’s 26.5 per cent stake in Tata Teleservices for Rs 7,200 crore, at Rs 58 a share. Tata Sons had engaged Price Waterhouse to value its stake in Tata Teleservices and according to a report by Price Waterhouse, the fair value of Tata Teleservices shares stood at Rs 23.34 apiece. The source quoted earlier said the merger with Telenor would take place at about this valuation.
As stated in the December ended quarter reports, Telenor’s Operating loss doubled to Rs 276 Crore as compared to Rs 132 crore last year. It also to be noted that revenue rose by 38 percent. This year company also added around 2.3 million new users to its network.
Talking about the Tata Tele reports, it faced a net loss of 6,166 crore on total operating income of 10,484 crore in FY14, compared to a net loss of 1858 crore on almost the same operating income. In FY15 there was increase in the loss of firm in the quarters.
In my view, this strategic move by both organisations will be a win win situation, with Telenor having an upper hand. Tata Tele is currently in a bad shape, with Docomo also filed an arbitrage policy against it earlier this year. Telenor is also in red sign, but showing improvement in revenues. With both the names coming under one roof, both will be able to use there huge network of subscribers to increase there profits and grow.This deal should have happened long time back, in around 2012, but was not finalized due to certain reasons, which costed them losses in these years.