Hutch buys Aircel for Rs 1,600 cr

Hutch-Essar pays slightly over $400 (Rs 18,000) per subscriber to acquire the company.

Hutchison-Essar has snapped up the C Sivasankaran-promoted Aircel Ltd for around $362 million (Rs 1,600 crore) in one of the country's largest telecom deals.

Aircel offers cellular telephony services in Tamil Nadu and Chennai. With over 850,000 subscribers, Hutch-Essar has paid slightly over $400 (Rs 18,000) a subscriber to acquire the company. The deal also includes cash for equipment bought by Aircel for expansion. Hutchison's partners, the Ruias, are part of the deal.

The Hutch-Essar combine pipped Idea Cellular and Bharti Tele-Ventures in the race to buy out Aircel. Bharti is believed to have offered Rs 1,200 crore.

Sivasankaran had earlier said he was looking at a price of around Rs 2,250 crore for Aircel . Hutch has been able to bring down the acquisition price.

The Hutchison-Essar combine has already applied to the Foreign Investment Promotion Board (FIPB) for setting up a holding company to consolidate operations in various circles. The holding company will cater to 5.6 million customers.

With the Aircel acquisition, the subscriber base of the merged entity will go up to around 6.5 million. Aircel will also be merged in the new consolidated company and the deal has been so structured that the Ruias' stake will be between 22 per cent and 38 per cent, depending on how much they acquire from the other partners in the holding company. The earlier valuation of the merged entity, $3.6 billion, is expected to go up now.

The price paid by Hutch per subscriber is higher than what Bharti forked out for acquiring the Shyam group-owned Hexacom Ltd, which ran mobile services in Rajasthan. Bharti paid Rs 300 crore to pick up a 68 per cent equity stake in the company. With about 280,000 Hexacom subscribers, the per subscriber acquisition cost was over Rs 10,500.

In yet another deal some months ago, Idea Cellular is believed to have paid Rs 1,150 crore, including debt, to buy out Escotel Mobile, which offered services in Haryana, Kerala and Uttar Pradesh (West) to over 1 million subscribers. The per subscriber cost of acquisition here was over Rs 11,000.

And recently, the Singapore Technologies Telemedia-Malaysia Telekom combine picked up a 33 per cent stake in Idea Cellular for $200 million.

Analysts, however, say companies are not looking only at the cost of acquisition per subscriber. "Companies are willing to pay more because they feel it is in their strategic interest to do so," said Sanjay Mehta, head of telelcom practice in Ernst & Young.