Analyze the Airtel-Telenor merger / acquisition deal including, but not limited
ID: 2807525 • Letter: A
Question
Analyze the Airtel-Telenor merger / acquisition deal including, but not limited to, the following: 1. A brief note about the deal including background of companies involved and their business and product segments. (2 m) 2. Pain areas of acquiring company due to which the deal was initiated. (2 m) 3. Areas from where the possible synergies were anticipated at the time of deal. (2 m) 4. What was the anticipated gain of merger/acquisition? (2 m) 5. What was the cost paid for the deal? How was it paid (cash or stock or both)? (1 m) 6. Do you think the deal price was right at that time? Why? (2 m) 7. If you look at present situation, who do you think was having an advantage (Acquirer or target)? Why? (2 m) 8. If you would have been at the place of a key decision maker in the deal from the side of acquirer, What you would have done different? (2 m)
Explanation / Answer
(1)
The Airtel Telenor merger involved acquisition of Telenor India Ltd's operations, customers, local liabilities, tower leases, 3G spectrum and operating contracts across seven telecom circles in India.
Telenor India Ltd originally known as Uninor, was a joint venture between real estate titan Unitech Group's Unitech Wirless and Norwegian telecom behemoth Telenor Group. The JV was formed in 2009 post acquisition of telecome and wireless operation licenses in all 22 telecom circles in India. The telecom scam in India led to the cancellation of 122 telecom licenses of 22 operators in the country. This led to cancellation of Telenor's licenses as well. Post this the company decided to scale down operation to just 4 circles. Following the license cancellation and scale down a dispute arose between the JV partners regarding the control and operation of the company's other assets. The JV fell through in October, 2012 following which Unitech exited the venture and Uninor was renamed as Telenor India Ltd.
Bharti Airtel is the pioneer of the Indian Telecom Industry and is currently the largest telecom service provider in India and 2nd largest globally with a total subscriber base of 386 million. It currently operates across 17 countries and has operations in all 22 telecom circles in India. It functions on the low cost outsourcing based business model under which it has outsourced all operations except finance, marketing and sales to sub contractors. Its leadership position was threatened by the launch of the freebie loaded Relaince Jioinfocom in India in 2016. Reliance Jio is the telecom foray of India's most valuable private sector firm Reliance Industries Limited and has forced incumbents to consolidate their position by means of mergers and acquisition.
(2)
Bharti Airtel as well as Telenor India were reeling under high debt burdens owing to the increasing cost of telecom spectrum allocation in India. Spectrum allocation reserved prices were set very high and allocated via a competitive bidding procedure, thereby pushing spectrum acquisition costs even higher. Infact the pan India spectrum was priced at around 140 billion INR. This situation coupled with intense competition and margin erosion were some of the issues that served as pain point not just for the party to this merger but for all telecom operators in India.
(3) Bharti Airtel will gain access to 43.4 units of 4G spectrum in the pricey and extremely valuable 1800 MHz band.It will also acquire 44 million Telenor customers across 7 lucrative and high growth potential telecom circles. These 7 circles contribute around 36% of Airtel's existing revenues and will therefore boost these revenue levels through the merger. Also, the acces to high value 4G spectrum would reduce future spectrum requirements and hence spectrum acquisition costs, thereby unlocking cost synergies. Leveraging of existing operating contracts and tower leases will ensure further cost synergy through economies of scale. Further cost synergy would be realized through suspension of interconnection usage charges once Telenor customers are migrated to the Airtel network.
(4) The anticipated merger gain is represented only as a revenue growth through greater customer acquisition and cost reduction through realization of economies of scale. The quantity of these gains is unknown as the deal has been completed at an undisclosed price.