In a U-turn, Tata Sons has decided to keep the enterprise business of Tata Teleservices separate and not merge it with Tata Communications. The plan is to scale up the business and later evaluate strategic options for the unit.
The current thinking is that the enterprise business will be run separately, as a lot of value needs to be created. Furthermore, Tata Communications has its own challenges, like deals being stuck for want of regulatory approvals, said a source. In 2017, Tata Sons had announced plans to combine the enterprise unit of Tata Teleservices with Tata Communications as part of a broader strategy to reduce exposure to the beleaguered telecom sector.
The latest change in strategy is because of apprehensions in getting customary and regulatory approvals for the merger within an estimated time frame. For instance, the source added, Tata Communications is yet to conclude its decade-long plan of demerging surplus land into a separate company as this is also pending approvals.
And then, Tata Communications must get a nod for the acquisition of the enterprise business from the telecom department, shareholders, etc. With the general elections coming up and the formation of the government after that, the transaction will take time to conclude. Rather than wait for the processes to be completed, it was decided to retain the business separately, the source further said. The government is a key shareholder in Tata Communications with a stake of 26%.
Tata Sons had earlier decided to merge both the enterprise units of Tata Teleservices and Tata Communications as it will help consolidate the business under one roof. Tata Sons chairman N Chandrasekaran has been advocating mergers within the $111-billion conglomerate — especially of companies that are into similar or adjacent areas of operations — as it will simplify the group’s corporate structure.
For the proposed merger transaction, Tata Communications had also appointed Axis Capital to undertake the valuation of the enterprise business of Tata Teleservices. Previously, former Tata brand custodian Mukund Rajan, along with a leading private equity firm, had offered $1 billion to acquire the enterprise business. But this proposal was turned down by Tata Sons.
Besides the enterprise unit of Tata Teleservices, the rest of the businesses of the company — the consumer mobile and fixed-line & broadband — will be merged with Bharti Airtel and Tata Sky, respectively. The wireless telecom unit’s deal with Airtel is awaiting approval too. With regard to Tata Sky, after the amalgamation of the fixed-line & broadband business, the company has become a part of the group’s larger play in retail, said the source.—Times Of India