The memorandum of understanding (MoU) between Singapore Technologies Telemedia (STT) and Telekom Malaysia (TM) for picking up 47 per cent stake in Idea Cellular lapsed on June 11 without the companies closing the deal. In light of this, the two companies decided to call off the proposed transaction since they had failed to get the necessary regulatory approvals in India within six months of the original agreement.
In an official statement issued from Kuala Lumpur (Telekom Malaysia) and Singapore (STT), the two companies stated that the consortium had been working diligently and closely with Indian government officials over the past few months to address every issue. “It is with deep regret that the transaction has been called off since we have not secured the necessary regulatory approvals within the six-month period allowed by the sale agreement,” they stated.
With little information available on the talks between the two parties, the sector has been rife with speculation on the progress on the deal. It was reported that the combine had been asked to rework the proposal in connection with Temasek’s role in the management and its international operations to make the joint venture proposal with Idea acceptable to the Department of Telecommunications (DoT).
According to an earlier agreement signed in December 2004, the STT-TM consortium had made a bid to purchase 47 per cent stake in Idea Cellular, which included the 33 per cent stake held by Cingular Wireless (earlier held by AT&T) and the balance from the Tatas and Birlas after they diluted their holding in the company to 53 per cent, for $390 million. STT and TM held about 60 per cent and 40 per cent stake respectively in the special purpose vehicle (SPV) created for the Idea deal.
However, DoT threw a spanner in the works by raising an objection to the bid on the grounds that Temasek, an equity fund that manages the Singapore government’s investments, owns 100 per cent stake in STT through another subsidiary and also owns 65 per cent in Singapore Telecom, which in turn owns a 28 per cent stake in Bharti Tele Ventures. The conflict arises because Bharti operates cellular services in the same circles as Idea. And, government rules disallow any one entity from holding more than 10 per cent in two operating companies in the same telecom circle. The STT-TM consortium could not obtain FIPB clearances on the Idea deal as Temasek, the holding fund for STT and Singapore Telecom, would then have a stake in both Idea and Bharti, operating in the same circles, which would violate the competition clause introduced while granting cellular licences to avoid a monopoly situation by any single company.
With the deal falling through, it is reported that TM has made a fresh bid, on its own this time, for Cingular’s stake in Idea Cellular. It has reportedly already met Idea’s shareholders and TM officials claim they plan to move quickly on this since they realise there may be other bidders for the stake. However, they are hopeful that TM will have an advantage over others due to their year-long association with Idea.
Analysts believe that the bid by the Malaysian company does not violate the agreement signed by the earlier SPV created to acquire the Idea stake, as it ceased to exist after having failed to get the required approvals. It appears that TM will go in for valuation based largely on the previous offer, though analysts feel the company will have to shell out more than the $390 million offered previously, as Idea’s valuation may have changed with its improved financial position and subscriber numbers in the past year.
The other potential bidders for a strategic stake in Idea could be Maxis, another Malaysian telecom company, and foreign investors like Orascom Telecom Holding of Egypt, Systema Telcom of Russia and Telenor of Norway, or even Indian telecom majors like Bharti and Hutch. With the fray still fairly open, Idea’s strategic sale seems some way away.
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