After merging its own operations across the country into one consolidated entity, Hutchison Essar has made its next move to firm up its position in the cellular market. It has bought out BPL’s cellular businesses apart from taking over Essar’s wholly owned subsidiary, Essar Spacetel.
Hutchison Essar has entered into a binding agreement to acquire the two cellular companies of BPL Communications – BPL Mobile (Mumbai) and BPL Cellular (Tamil Nadu, Kerala, Maharashtra and Goa) – from the Essar Group at an enterprise value of $1.15 billion or Rs 50.6 billion. It has also entered into a conditional agreement with Essar to buy out Essar Spacetel for $6 million or Rs 270 million.
While the BPL acquisition will be funded in cash and through assumption of debt, the Essar Spacetel deal would be completed in cash. The cost of the acquisitions will be funded by its shareholders and external bank borrowings. More specifically, the equity will reportedly be raised through a rights issue of $400 million while the balance $800 million will comprise debt.
The acquisition will not result in any change in the shareholding structure of Hutchison Essar. Hutch will continue to have close to 53 per cent stake, which includes direct and indirect holding, while Essar will continue to have over 30 per cent. The remaining stake will be held by the Kotak Group (8 per cent), and Hinduja and Max (8 per cent together).
When completed, the BPL acquisition will increase Hutchison Essar’s customer base to more than 12 million across 16 circles. At present, Hutchison Essar has over 9.3 million customers across 13 circles and operates two brands – Orange in Mumbai and Hutch in the rest of the country. BPL Mumbai is the second largest mobile service provider in Mumbai with 1.3 million customers and BPL Cellular has a total subscriber base of 1.5 million in three circles (Tamil Nadu, Kerala, Maharashtra and Goa).
Further, Essar Spacetel’s acquisition will make Hutchison Essar the fourth entity to have a pan-India wireless footprint, the other three being the BSNL-MTNL combine, Reliance Infocomm and Bharti Tele Ventures. Of course, this is provided Essar Spacetel gets the go-ahead from DoT for the seven circles (not presently serviced by Hutchison Essar and BPL) it applied for in December 2004. The circles are Madhya Pradesh, the Northeast, Himachal Pradesh, Bihar, Orissa, Assam, and Jammu & Kashmir.
“These are defining acquisitions for Hutchison Essar. By giving us the ability to complete our nationwide coverage, they position us to capitalise on the tremendous growth opportunities in India,” says Dennis Lui, chief executive of Hutchison Telecommunications International Limited. With more than 12 million customers, “the combine of Hutchison-Essar and BPL Mobile will create a national footprint and will emerge as a strong force alongside Airtel and Reliance”, says Nimesh Kampani, chairman of analyst firm, JM Morgan Stanley.
Earlier, in February this year, Hutchison Essar had consolidated its domestic operations under one entity, Hutchison Max. In July, Essar bought a 64 per cent stake in BPL Communications, the holding company of BPL Mobile and BPL Cellular, for a consideration of over $1.2 billion. At that time, it was stated that the BPL businesses would eventually merge with Hutchison Essar after necessary approvals. Two months later, Essar acquired T.P.G. Nambiar’s 13 per cent stake in BPL Communications for Rs 1.25 billion. The remaining shareholding was bought over from other shareholders, both foreign and domestic.
Following its consolidation, Hutchison Essar is planning a brand makeover.It is likely that it will phase out its Orange brand in this financial year and will consolidate all operations, including its new acquisitions, under the Hutch brand name.
Clearly, Hutchison Essar is moving in the right direction.Not only will the acquisition of BPL and Essar Spacetel give it a national footprint, it will also crucially help the company increase its valuation before entering the primary capital market with its initial public offer in early 2006.
