DoCoMo will also, along with Tata Sons, make a tender offer to buy 20% of the outstanding shares of Tata Teleservices (Maharashtra), a subsidiary of Tata Teleservices, in accordance with guidelines set out by market regulator the Securities and Exchange Board of India. No financial details of the offer were disclosed.
The firms also did not clarify how the Rs130.7 billion investment will be executed but analysts expect it will be through a combination of a sell-down of existing shares by Tata Sons, the Tata Teleservices promoter and group holding company, and an allotment of new Tata Teleservices shares. This will enable Tata Sons to realise some value from its holding in Tata Teleservices and also enable DoCoMo to deploy part of its investment for capital expenditure required by Tata Teleservices for its GSM (global system for mobile communications û the most popular standard for mobile phones) rollout scheduled for early 2009.
Tata Teleservices is a telecommunications player and owner of the Tata Indicom brand. It was the first to launch CDMA mobile services in India. CDMA, short for code-division multiple access, is a digital cellular technology which is thought to have better capacity for voice and data communications than other mobile technologies.
In 2002 Tata Teleservices acquired Hughes Tele.com (India) and renamed the company Tata Teleservices (Maharashtra). Since then Tata Teleservices has created a pan-India presence covering 6,700 towns in 20 telecom circles spread across key Indian states and regions, including New Delhi and Mumbai. Tata TeleservicesÆ products include mobile services, wireless desktop phones and public phone booths among other things. The combined subscriber base of Tata Teleservices and Tata Teleservices (Maharashtra) is around 29.3 million.
Tokyo-based DoCoMo is a market leader in JapanÆs mobile phone industry with a market share of more than 50% and 53 million customers. On October 31 the company announced its intention to achieve new growth, which included a plan to expand its revenue streams from international businesses by ôpursuing investments and alliances mainly in the Asia-Pacific regionö.
DoCoMo has already been on a regional expansion spree. In June it acquired a 30% stake in TM International (Bangladesh), a mobile phone operator based in Dhaka, at an outlay of $350 million. And in December last year it teamed up with Korea's KT Freetel for a joint investment in Malaysian 3G mobile operator U Mobile. Each buyer paid $100 million for a 16.5% stake.
Analysts are generally positive on this latest investment by DoCoMo as the Japanese firm will be well positioned to participate in higher growth prospects in emerging markets. Mobile phone penetration in India is only around 30% (320 million subscribers), while it is more than 80% in Japan. Technology research specialist Gartner predicts penetration in India will increase to 54%, representing 650 million subscribers, by 2012.
DoCoMo's move comes less than a month after Norwegian telecom operator Telenor paid $1.07 billion for 60% of India's Unitech Wireless, which has spectrum to launch mobile services. In that instance, the entire investment will go into the target company.
DoCoMo was advised by J.P. Morgan, placing the US investment bank on the other side of the negotiating table from the Tata group. Earlier this year J.P. Morgan advised Tata group company Tata Motors on the $2.3 billion acquisition of the Jaguar and Land Rover brands and businesses. This time, the Tata group was advised by Lazard.
DoCoMo did not provide details about how it intends to finance the deal but considering it had Ñ524 billion ($5.4 billion) of cash and cash equivalents on its balance sheet as of September 30, it should have no problem shelling out $2.7 billion.
DoCoMoÆs shares closed at Ñ159,800 on the Tokyo Stock Exchange yesterday, up 1.33%. The formal deal announcement was made after the close of trading, but news of the deal had been filtering into Japanese newspapers since Monday.