Tata Comm to bid for British Telecom


12 Jan 2012
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Tata Communications to bid for British telecom Cable & Wireless Worldwide

MUMBAI: Tata Communications Ltd is eyeing Cable & Wireless Worldwide Plc --- a London-listed telecommunications giant with origins steeped in British imperialist history --- signaling the return of India's largest private conglomerate to bulge-bracket global buyouts. The $84 billion Tata Group's telecom arm may be vying with Vodafone Plc for the potential acquisition, which is still in early stages, said sources directly briefed on the matter.

C&W is best known in India as the former sponsors of the West Indian cricket team.The company's association with India goes back to 1870 when it laid the world's biggest submarine cable connection from Mumbai (then Bombay) to Porthcurno in England.

C&W may attract valuation upwards of $1.2 billion for its voice, data and IP based services to large clients four across continents. The troubled company's market value has declined over 70% in the last 24 months, broadly reflecting the woes of the global telecom sector, but making it possibly the least expensive target in the industry. Tatas are preparing to launch a bid for the asset in the next two weeks. Standard Chartered Bank is advising Tatas on their largest telecom acquisition move.

The deal would be significant, if it goes through, providing Tata Communications with a larger footprint in voice and data carrier businesses as well as in the undersea cable network. C&W owns 4,25,000 km of cables connecting more than 150 countries, with strong presence in most of the former British colonies.

About one-third of its pounds 2.2 billion revenues comes from carrying internet and voice traffic for other telecom companies. Will Cameron, a spokesman for C&W declined to comment on the potential interest from the Tata Group. Rothschild and Barclays Capital are advising C&W to explore strategic options after being approached by suitors. A query to Tata Group spokesperson did not elicit any response at the time of going to press.

Tata Group has built its presence in the data carrier business through acquisitions -- VSNL (now Tata Communications) in 2002, Tyco International (US) in 2004, Teleglobe ( Canada) in 2006 and Neotel (South Africa) in 2009. The NYSE-listed Tata Communications has invested more than $3.6 billion since 2002 in acquiring and building network and data centre infrastructure, technology and service capabilities and entering new markets. Roughly 75% of the company's $2.6 billion revenues comes from the overseas market.

"The acquisition will be complementary to Tata's existing infrastructure allowing them to consolidate their low cost position in the bandwidth provisioning. This will also reinforce India's position as an outsourcing hub providing services to both enterprises and operators with a comprehensive set of solutions," said Thomas Kuruvilla, MD, Arthur D Little, a management consulting firm. C&W, which has holdings in 60 global cable systems, could trigger fresh consolidation in a capital intensive sector with high capacity (large amount of unlit fibre).

"But Tata should be very careful about the purchase price. C&W has 60% of its revenues from UK and with UK economy not doing well, C&W can face headwind in immediate future. In addition, C&W's IP and voice business have very low margin, therefore Tata Communications will have to look at C&W cost structure as well effectively utilize its network to grow the overall business volume," he added. India's other telecom majors Bharti Airtel and Reliance Globalcom could also look at the slumping C&W but there was no confirmation for the same.

It isn't clear how Tatas plan to structure this deal and whether any group entity other than Tata Communications will be involved with it. Tata Communications has faced limitations in fund raising, with the government that owns 26% reluctant to infuse fresh equity into the company. Tata Communications has been resorting to debt (over $1.5-billion) to fund its expansion, weighing down the company. A few weeks ago, Tata Communications management, headed by Vinod Kumar, said that the company plans to spend $250 million to expand its telecom infrastructure.

The latest bid is a continuation in Tata Group's theme of globalizing its diversified businesses. The current chairman Ratan Tata, who is due to retire later this year, transformed the salt-to-software conglomerate into a global empire with a string of high voltage acquisitions of Corus Steel, Jaguar Land Rover (JLR) and Tetley. Tatas are the largest Indian investor in UK.

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