Airtel's Acquisition of Tata's Consumer Mobile Businesses: A Matter of Choice or Necessity?
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Case Code: BSTR553 Case Length: 14 Pages Period: 1996-2017 Pub Date: 2018 Teaching Note: Available |
Price: Rs.300 Organization: Bharti Airtel, Tata's Consumer Mobile Businesses Industry: Telecom Countries: India Themes: Merger and Acquisition |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Bharti Airtel Limited
In 2017, Airtel, based in Delhi, India, was one of the leading multinational telecommunications companies. The company had operations in more than 20 countries in South Asia and Africa. It was founded by Mittal as Bharti Tele-Ventures Ltd (Bharti). Bharti, incorporated as a company with limited liability under the Companies Act on July 7, 1995, had started as a regional operator limited to Delhi operations. However, within 2 years - 1995 to 1997 - it launched cellular services in Himachal Pradesh and Madhya Pradesh. Bharti was the first private sector operator to provide fixed-line services in India...
Tata Teleservices Ltd.
In the year 1996, TTSL was set up as a channel for Tata Group to enter telecom services; these services started in the Andhra Pradesh Circle. TTSL was a pioneer of the Code-Division Multiple Access (CDMA) technologies and offered basic telephony services. The company was on the growth path after the acquisition of Hughes Telecom (India) Limited (HTIL), a basic service operator in Maharashtra, in April 2002...
The Deal
On October 12, 2017, Airtel announced the acquisition of Tata's CMBs (TTSL and its subsidiary TTML). The deal was debt free and cash free. Tata's had a negative value after the continued losses were taken into consideration, and this resulted in negative equity. Hence, the enterprise value was zero, and where debt was concerned, all the past liabilities and dues were to be settled by Tata. The combined debt of TTSL and TTML as on March 31, 2017, stood at Rs. 340.89 billion, excluding deferred payment liabilities to the government for spectrum. Out of the total estimated deferred spectrum cost of Rs. 100 billion of Tata's, Airtel bore Rs. 15 billion of the unpaid spectrum payment...
The Challenges
Industry observers opined that the integration risk was higher for Airtel as the company had simultaneously merged with another telecom company, Telenor India. In February 2017 Airtel acquired Telenor. As a part of the merger deal, it had to acquire the operations of Telenor in seven circles - Andhra Pradesh, Bihar, Maharashtra, Gujarat, UP (East), UP (West), and Assam. This merger gave it a customer boost of 44 million and 43.4 MHz spectrum holdings in the 1800 MHz band in seven circles. Airtel had to integrate Telenor India's employees, customers, and spectrum simultaneously with Tata's CMB employees, customers, and spectrum and this created an integration risk for the company...
Looking Forward
In late 2017, India was the world's second-largest telecom market with over 1 billion mobile subscribers. The industry was under extreme financial stress due to the disruptive entry of Jio. This strategy pulled down the competitiveness of the telecom providers and led to a decrease in the profit margin of the existing operators. Operators that had less market share were unable to withstand Jio's onslaught and a wave of mergers and acquisitions started in the telecom industry. Airtel acquired Tata's CMB and this acquisition helped Airtel to boost its subscriber base to hold its position. However, the merger of Idea and Vodafone pulled down Airtel to number two position...
Exhibits
Exhibit I: Usage and Revenue for Full Mobility Services
Exhibit II: Telephone Subscribers in the Industry
Exhibit III: Major Players in Telecom Industry as on March 31, 2016
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