The two Indian companies are looking at possibly merging Tata Teleservices, Tata Sky, and Tata Communications with Bharti Airtel, the Economic Times claimed in a report citing people familiar with the matter.
Talks around the mega merger are still at a preliminary stage, the people quoted claim, but if struck would follow the current pattern of consolidation in the Indian market.
Vodafone has agreed to merge its Indian unit, the second biggest in the country, with Idea Cellular, the third biggest mobile operator, while Reliance Communications is merging with Aircel.
A Tata Sons spokesperson declined to comment, while the Bharti Enterprises spokesperson did not respond to emails.
One element set to be part of the merger, which has not been commented on by either firm, would be joining Airtel, the current mobile market leader, with Tata Teleservices, the loss making arm that led it into a dispute with NTT Docomo.
Any deal could also potentially see the firms combine enterprise business segments Tata Com and Bharti Airtel, which are at similar levels when it comes to revenue. This could potentially see a combination of the respective wholesale businesses that could yield significant synergies for the unit, creating capacity for up to twice the number of customers the two are currently serving, the report claims.
As with any early merger talks, it is important to note that nothing has been agreed, and significant regulatory, financial and structural hurdles could stifle a potential deal.
One such issue could be the Indian’s government’s 26% stake in Tata Communications, though the Economic Times notes that the government may be set to divest this later this year.
Tata’s structure means different operating companies have different shareholders and debt levels. Sorting this could prove another hurdle for dealbrokers. The Economic Times’ sources said Bharti would be unwilling to take on Tata Teleservices’ existing debt, for example.
According to a report form Livemint, the merger talks have been prompted by Tata Sons’ desire to exit the telecoms space. Citing three unnamed sources, the report ruled out an alliance or a merger between Bharti and the Tata group citing liabilities on the books of Tata Teleservices Ltd and Tata Communications Ltd.
Instead, Bharti will look to buy all of Tata’s telecom assets: spectrum in 800 Mhz, towers, sea cables and around 45 million active subscribers.
One of the sources, a Mumbai investment banker, said: “The Tatas wanted Bharti to take over the entire telecom business. The question is at what value? What are Tatas left with? Tatas would want to clear the debt but the telecom business is not sustainable for them. It does not make sense to put in more money in the business. So, Tata Sky is just a value-add to make the deal more lucrative.”