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Journalism of Courage
Ever since the Ambani brothers decided to annul their 5-year-old non-compete agreement,the media has been speculating about the possible opportunities this opens for the companies led by Mukesh and Anil Ambani. Certain logical conjecturesas was first done by this newspaperbased on solid reasoning and empirical data,show that it makes sense for RIL to enter high growth sectors like thermal power and telecommunications as it is sitting on huge cash reserves of around 5 billion,and can generate 18-20 billion over the next one year. Similarly,this newspaper was the first to highlight that Anils RComm can now open lines of communication with South Africas MTN that were aborted in 2008 due to the right of first refusal clause,which was vested with Mukeshs RIL. The report was hypothetical in nature,simply pointing out the possibilities and not stating that such talks have started or are about to start.
What is disturbing and certainly risky for investors is the spate of reports,which have started appearing in certain leading publications,irresponsibly talking about Mamp;A deals without checking the basic facts of policies. Such reports are best ignored,but when it leads to a companys share price rising by 11,its certainly time to warn and educate. A newspaper report on June 2 stated that UAE-based Etisalat is in talks to acquire 25 stake in RComm. While it prominently highlighted the valuations and the possibility of such a stake sale,it conveniently presented the cross-holding norms,which make such a deal impossible towards the very end,as something that is not a hurdle at all.
One can argue that Etisalat DB can merge with RComm,which is permissible under the regulations. For incumbents it is so but not for new licensees like Etisalat DB,which got licences through controversial means and have subsequently been barred for three years from merging with any other company so that the unearned gains do not accrue to them. The newspaper report that made RComm stocks surge the next day conveniently forgot this aspect!
Some analysts have argued that the current Trai recommendations have suggested liberal Mamp;A norms and once they are accepted the stage would be set for an RComm-Etisalat deal. Analysts and business journalists should know better. The Trai guidelines have said that any merger that results in the merged entity having spectrum beyond 6.2 MHz which it would in this case will have to pay market rates the 3G spectrum rates for the excess spectrum,plus a 5 transaction charge to the government. This means that for Etisalat to have a deal with RComm,first it would take a hit on its 900 million acquisition,then pay money to RComm for the stake,pay the government for excess spectrum,in addition to a transaction charge! Hilarious. But even if one accepts this,what does Etisalat get in returnregulatory uncertainty? With the Trai recommendations just coming in,theres huge regulatory uncertainty in the country that will easily persist for another year,ensuring that no big merger deals happen.
So dear investor,next time you read about an RComm-Etisalat deal,treat it with discountit cannot happen by any means for the next several years. Meanwhile,an MTN spokesperson has already denied that the company is in talks with RComm for any kind of deal.
rishi.rajexpressindia.com
