The Hindu Business Line : New guidelines on mergers likely to upset AT&T plans

M&A hurdles
New telecom companies can get a financial investor for up to 49 per cent stake but may not be allowed to dilute up to 74 per cent.
AT&T’s talks with Aircel and Idea Cellular may run into rough weather.

Thomas K. Thomas

New Delhi, April 23 Even as AT&T is talking to a number of new telecom licence holders, including Aircel, Videocon and Idea Cellular for re-entering the Indian mobile space, the new merger and acquisition guidelines could turn out to be a dampener for the US company.

AT&T, which is eyeing a quick buy to foray into the world’s fastest growing cellular market, may have to wait for another 3 years before it can acquire a controlling stake in any of the new Indian telecom players.

According to the guidelines released on Tuesday by the Department of Telecom, new licence holders cannot enter into a merger and acquisition deal before 3 years. The lock-in period means that new telecom companies, including Videocon, Unitech, Swan and BPL, which are scouting around for a strategic partner, can get a financial investor for up to 49 per cent stake but may not be allowed to dilute up to 74 per cent as it would become an acquisition as per the Company Law. AT&T has been talking to these companies for a possible controlling stake of 74 per cent. When contacted, Mr Venugopal Dhoot, Chairman, Videocon, said, “It is unclear whether the 3-year lock-in period will be applicable only for merger deals or includes acquisitions as well. One will have to ask the Government for clarifications.”

AT&T’s discussions with existing operators such as Maxis-controlled Aircel and Idea Cellular could also run into rough weather under the new M&A norms. While Aircel has nine operational circles, it has got new licences for 14 circles recently. Idea Cellular also has nine new licences and these cannot be put up for sale prior to the 3-year period. It will be unlikely that AT&T settles for only the existing cellular operations of Aircel or Idea as it does not even cover half the country’s population.

“We are studying the guidelines internally. There seems to be ambiguity in the rules and we will write to DoT seeking more clarity. But these stringent M&A norms could practically mean that no M&A deal can happen in the Indian telecom sector for the next 3 years,” said Mr T.V. Ramachandran, Director-General, Cellular Operator’s Association of India. The only hope for AT&T will be if DoT clarifies that the lock-in period excludes acquisition, in which case it will be able to pick up stake in any of the new licence holders which gets spectrum first.