With Reliance Communications Ltd (RComm) and the South African telecom major MTN calling off talks to create what would possibly have been the world?s seventh largest mobile firm, it is the second major failure faced by Anil Dhirubhai Ambani Group (ADAG) in less than two years, in its efforts to seal a major M&A deal in the telecom space.
Interestingly, this and the earlier attempt between late 2006 and early 2007 to acquire Hutch?s 67% controlling stake in Hutch-Essar, were both spoilt due to domestic factors. When Anil threw his hat to acquire a controlling stake in Hutch-Essar after Hutch signalled its interest in exiting India, the move could not fructify, as the Ruias-controlled Essar Group was not keen to part with their 33% stake in the firm. The move led to the world?s largest mobile firm by revenue, Vodafone, stealing a march over RComm and acquiring Hutch?s stake at around $11 billion.
This time round, when Anil seemed close to structuring a deal with MTN, the non-compete agreement reportedly signed with RIL on January 12, 2006, played spoilsport, with RIL citing the right of first refusal to object to a proposed deal.
While the merger and acquisition norms, which govern the Indian telecom sector, acted as a roadblock in acquiring Hutch, it was the prospect of prolonged legal wranglings, which probably made MTN think otherwise.
The M&A norms stipulate that a telecom firm operating in a circle can either acquire stake upto 10% in an another firm in the same circle or acquire the company fully and merge its licence with itself. The provision entailed that RComm either acquire up to 10% in Hutch, which did not make sense, or acquire it fully, which was rendered impossible with the Ruias unwilling to part with their stake.
While the roadblocks seem similar, the strategy adopted by RComm while pursuing both the acquisitions had some dissimilarities. In the case of Hutch, the company was quite open right from the beginning that it was in the race. Later, Anil Ambani even spoke on record about the interest at a company function. However, in the case of MTN, when rival Bharti Airtel announced its negotiations with MTN, there was no word from RComm. Both officially and unofficially, the company officials kept denying that they were in the race for MTN. However, within two days of Bharti announcing its disengagement with MTN, RComm announced it had entered into a 45-day exclusivity period for talks with MTN.
The sudden development led analysts to speculate that RComm would have already been in undisclosed negotiations with MTN. In both the M&A attempts, Bharti appeared on the map, although in different circumstances: in the case of Hutch, which ultimately went to Vodafone, the latter had a 10% stake in Bharti, which it later divested, and in the present case, Bharti preceded RComm in talks with MTN.
