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Birlas Buy Tata’s Stake in “Idea Cellular”
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On April 08, 2006, media reports mentioned that the Tata’s were in final stage of negotiations to sell their stake in Idea to Maxis, a Malaysian telecom company, for just over Rs 40 per share. The Birlas then decided to take full control over Idea by matching the offer made by Maxis.
Industry analysts saw this buyout as a profitable deal for the Tata’s who had gained Rs 29.85 billion out of an investment of Rs 14.21 billion over a 12-year period in Idea. They felt that the Tata’s could now invest the amount they got from this sellout to fund the expansion plans of Tata Tele.
This acquisition would also enable the Birlas to get complete control of Idea and focus on the future growth and expansion initiatives of Idea. Industry sources also revealed that Idea had a debt of approximately US$ 1 billion and needed fresh investments for growth and reduction of its debt-equity ratio. The Birlas, who would have a 98% stake after this buy out, were planning to offload 33% stake to some financial institutions. The Birlas would still retain management control as they would continue to hold a 65% stake.
Analysts felt that this acquisition would see the beginning of a rejuvenation phase for Idea. Idea was the fifth largest mobile operator in India (in 2005) and had a subscriber base of over seven million. But, it had to catch up with well established competitors like Bharti, Reliance Infocomm, BSNL, and Hutch.
As of April 2006, Idea operated only in five of India’s 23 telecom Circles. With this acquisition Idea could work toward emerging as a strong player in the Indian telecom sector. As part of its expansion, the company planned to enter the Mumbai Circle, for which it had applied for a license in 2005. Analysts believed that Idea’s expansion plans would be welcomed by cellular subscribers as they would benefit from greater competition and more choice.
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