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Bharti to buy 68% in Hexacom for Rs 430 crore
By siliconindia
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Tuesday, 06 April 2004, 19:30 IST
NEW DELHI / MUMBAI: Bharti Tele-Ventures (BTVL) on Monday said it would acquire Shyam TelecomÂ’s 67.5% share in Hexacom, RajasthanÂ’s largest cellular service provider, for Rs 430 crore in a share swap deal, reports Economic Times.
“The Rs 430 crore include a consideration of Rs 75 crore payable in equity shares of Bharti Tele-Ventures, Rs 300 crore in optionally convertible redeemable debentures and the balance in cash,” said a joint statement issued by Bharti and Shyam. The pricing sets a premium for majority shareholding. According to sources, the premium for obtaining the controlling stake is said to be around Rs 170 crore.
Last Friday, ET had reported that the deal was close to consummation and would be for a sum of about Rs 400 crore. Going by the current deal, the valuation of Hexacom works out to about Rs 637 crore. Although the government-owned Telecom Consultants India (TCIL) has the right of first refusal, by virtue of its 30% stake, the company has indicated that it has no interest in increasing its stake in Hexacom.
Moreover, TCIL had appointed SBI Caps as advisor to sell its 30% stake in Hexacom. TCIL has a month to decide whether it would like to exercise its right of first refusal. Some private investors have about 2.5% stake in Hexacom.
Hexacom has about 2.5 lakh subscribers and over 44% of the market share. At Rs 637 crore, Hexacom is valued at about 10.5 times its EBITDA. In terms of per subscriber valuation, Hexacom is valued at $579 per subscriber. On both counts, the valuations are considered to be among the best for a telecom operator in India. Generally, a telecom operator is valued at about $400 per subscriber. Therefore, this valuation is being seen as a benchmark for other deals that are under negotiations.
Bharti may, however, argue that the overall valuation of Hexacom may be less than Rs 637 crore, as it has got the management control with the acquisition of ShyamÂ’s 67.5% holding in Hexacom. Hexacom is a well-managed company with zero debt, sources said.
“This is the first M&A deal in the telecom sector in the current financial year. It’s also the first telecom M&A for Ambit,” said Ashish Guha, a partner at Ambit, the Mumbai-based investment company that advised Bharti. Another Mumbai-based firm, Prime Securities advised Shyam Telecom.
Meanwhile, Bharti’s stock dipped over 4% on the Bombay Stock Exchange (BSE) on Monday after the company denied the ET news report on April 2 on the deal, titled, ‘Bharti close to buying Hexacom’. The announcement of the acquisition came in the evening, on the same day the company’s denial appeared on the BSE website.
The timing of the denial was somewhat surprising since the Bharti board was meeting in Delhi to finalise the Hexacom deal. When contacted, the Bharti spokesperson said that the denial had been issued on Friday, April 2, the same day the news appeared in ET.
Incidentally, the Bharti denial was carefully worded. Bharti Tele-ventures has informed BSE that “at this point of time the company does not have agreement with any of the existing shareholders of the company to buy their stake in Hexacom.”
Shyam TelecomÂ’s shares closed at Rs 69.55 on the NSE on Monday, 3.8% higher than FridayÂ’s closing price. The Shyam group is an operator of both cellular and basic services in Rajasthan. When the government announced the unified licence regime, in November Â’03, Shyam upgraded its basic service licence to a unified access licence, which allowed it to offer both fixed and mobile services. Shyam is now letting go one of the two licences.
“In order to enhance shareholders’ value, Shyam has decided to exit from Hexacom and focus on Rainbow,” said a Shyam official. Rainbow is the first fixed line and broadband service provider in Rajasthan, which has a subscriber base of 1,22,000. “By the end of this financial year, we plan to double our subscriber base,” said the official.
Last year, Bharti offered Rs 102 crore to Canada-based TIW for its 27.5% stake in Hexacom. Shyam, however, exercised its right of first refusal and acquired TIWÂ’s stake. This increased ShyamÂ’s holding in Hexacom to 67.5%.