Tata Tele to acquire Hughes Tele.com

MUMBAI: Tata group said on Thursday it will acquire a controlling stake in

Hughes Tele.com (India) Ltd. in a move to expand its presence in the country's

fast growing telecom industry.

Group firm Tata Teleservices Ltd., an unlisted basic phone services provider,

will acquire 50.83 per cent of Hughes Tele.com from its main shareholders

through a stock swap deal, officials told a news conference.

At current values the acquisition cost is Rs 3.64 billion. Hughes Network

Systems, a unit of US satellite television giant Hughes Electronic Corp, Ispat

Industries and Alltel Corporation together hold 55 per cent of the equity of the

company and the rest is owned by financial institutions and the public.

Hughes Tele.com offers fixed-line phone and broadband services in Maharashtra

and Goa. Tata Teleservices offers fixed-line phone services in Andhra Pradesh

and holds licenses for fixed-line networks in Gujarat, Delhi, Karnataka and

Tamil Nadu where it plans to launch services later this year.

Including the Maharashtra area, Tata Teleservices will have operations in six

telecom areas comprising 56 per cent of India's subscriber base and accounting

for 65 per cent of the country's telecom revenue, a statement said.

A previous attempt to merge the fixed line business of the two firms was

called off in January after they disagreed on valuations. The latest deal

follows the Tata group's acquisition of a controlling stake in former state-run

overseas telephone monopoly Videsh Sanchar Nigam Ltd. in February and the merger

of its cellular operations with Birla AT&T last year.

It now has a footprint in the entire telecom sector and offers international

and national long-distance telephony services, basic and mobile phone and

Internet services. "With the acquisition ... Tata Teleservices acquires an

immediate presence in Maharashtra rather than entering Maharashtra as a

competitor to Hughes Tele.com and building its presence over several

years," a statement said.

Hughes Tele.com has 170,000 subscribers in Maharashtra, including 120,000 in

the financial capital, Mumbai. Tata Teleservices, which has 170,000 subscribers

in Andhra Pradesh, plans to invest about Rs 90 billion over the next four years

to achieve an overall three million subscriber base by 2006.

The deal



Tata Teleservices Ltd. will acquire 714.3 million equity shares of Hughes
Tele.com by issuing the same number of preferred stock.

The redeemable non-cumulative convertible preference shares (RPSs) will have

a face value of Rs 10 each and carry an interest coupon of 0.1 per cent. They

are redeemable either after 51 months at a price of eight rupees or at the end

of 75 months at Rs 10.

The net present value of the shares is Rs 5.10, Ishaat Hussain, finance

director of Tata Sons, the holding company of the Tata group, said. Tata

Teleservices will also make an open offer to public shareholders of Hughes

Tele.com to acquire a further 20 per cent stake in the company at Rs 7.20 per

share, officials said.

The transaction also involves restructuring Rs 75 million worth of debt owed

to Hughes Network Systems. Hughes Tele.com's shares closed down 4.61 per cent at

Rs 7.25 on the Bombay Stock Exchange on Thursday.

Hughes committed to India



Hughes Network said in a statement that it wanted to focus on the satellite
broadband communications market in India in line with its global focus.

Hughes Network Systems chairman Pradman Kaul said India continues to be a

critical part of Hughes's global business plans. Hughes had already announced

its plans for a satellite broadband access system and also set up a software

applications development center in India.

"We expect to significantly grow our operations in India," he said.

(C) Reuters Limited.