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Bharti Airtel’s buyback of a 20 per cent stake in Bharti Telemedia comes as a “surprise” as it comes ahead of the upcoming spectrum auction, even as the rationale is to take complete control of DTH, according to analysts’ reports.
“We are surprised by this move as there was no compulsion for Bharti to buy its stake back from Warburg Pincus. Including the current transaction and its recent 5 per cent stake purchase in Indus Towers, Bharti has invested ₹60 billion (₹6,000 crore) over the past three months raise questions around its strategic intent,” according to a brokerage report by Jefferies India.
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Airtel to buy back 20% stake in DTH arm from Warburg Pincus for ₹3,126 crore
This transaction is part of its strategy to align the shareholding of its customer facing products, services and businesses under the same holding group“We are surprised by this move as well as its timing given the upcoming spectrum auctions,” it added.
Bharti Airtel on Wednesday said it will acquire a 20 per cent stake in its DTH arm, Bharti Telemedia, held by an affiliate of private equity firm Warburg Pincus for ₹3,126 crore.
According to BofA Securities, Warburg had acquired its stake in DTH in December 2017 at $350 million (BofA estimates) and is exiting at $420 million. Bharti is paying 70 per cent by shares, and hence limiting cash outflow.
“The rationale behind the transaction appears to be a full control of DTH especially as Bharti is looking to offer its bundled product ‘One Home’ to compete against Jio,” BofA Securities said, adding it considers the transaction largely a “win-win for both parties”.
On Bharti’s board constituting a ‘Special Committee of Directors’ to reorganise businesses it said, that by creating separate digital asset ownership, Bharti would be giving potential investors an option to acquire its digital assets by not investing in telco ones.
“We note that Bharti’s competitor RIL’s subsidiary Jio Platforms got investments from Facebook and Google. We do not consider both announcements to be material enough for any major stock price movement,” it added.
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