Financial Daily from THE HINDU group of publications
Friday, Oct 17, 2003
Financial Daily from THE HINDU group of publications Friday, Oct 17, 2003 |
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Telecommunications Corporate - Mergers & Acquisitions Reliance to buy FLAG Telecom for $207 m Our Bureau
Mumbai , Oct. 16 RELIANCE Infocomm has announced its plan to acquire FLAG Telecom, an international provider of wholesale telecom network transport and communications, for an aggregate amount of $207 million (around Rs 1,000 crore). The Agreement and Plan of Amalgamation for the acquisition was signed on Thursday between Reliance Gateway Net Pvt Ltd, a fully owned subsidiary, and FLAG Telecom Group. An announcement by FLAG said that this works out to $95.61 per share, a premium of more than 50 per cent over yesterday's closing price of the company which is listed on the London Stock Exchange and Nasdaq. This will be the first international acquisition by Reliance and the largest such international acquisition in the services sector by an Indian company, according to Mr Anil Ambani, Vice-Chairman and Managing Director, Reliance Industries. He told newspersons that the acquisition would be made through "cash from the Reliance group". The agreement is for the acquisition of 100 per cent of the fully diluted equity of the company. The acquisition is subject to regulatory approvals and FLAG shareholders' approval, which is to be sought in December this year. Reliance believes that the acquisition price is "very attractive and offers great value for FLAG shareholders". A FLAG official quoted in the company's announcement to the stock exchanges said that the price was an endorsement of the operating strategy of the company, which had filed for bankruptcy under Chapter 11 in April last year and had announced its emergence from it late last year. FLAG has 50,000 km of undersea optic fibre cable which will complement Reliance Infocomm's vast 3G digital network in the country, said Mr Ambani, adding that at peak time, the market cap of FLAG was $7 billion. VSNL, which was the sole provider of international bandwidth till a year back, is a shareholder in several undersea cable projects. Bharti has i2i undersea cable in joint venture with Singtel. The largest users of international bandwidth in India are software companies, ISPs, call centres and the business process outsourcing industry. Analysts said that being a wholesale bandwidth provider, FLAG would be a very compatible horse in the Reliance stable.FLAG is understood to have 10 gbps of international bandwidth coming into the country. Interestingly, it was only last year that FLAG was allowed to sell its bandwidth independently after a dispute with VSNL was resolved. VSNL had had the exclusive rights to market FLAG's capacity in India under an agreement through which it bought some bandwidth for 25 years. FLAG's submarine cable's landing station is at the VSNL gateway in Mumbai and is owned by VSNL, now a Tata group company. Its customer base consists of 180 of the world's leading operators including the top 10. The group also owns and operates low lagtency global MPLS based IP network which connects most of the world's principal Internet exchanges.
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