Japanese telecom major NTT DOCOMO Inc, on Friday, decided to exit from its joint venture with the Tatas. In March 2009, NTT DOCOMO had entered the Indian market by acquiring 26.5 per cent stake in Tata Tele Services for $2.7 billion (Rs.12,700 crore as per the then exchange rate). But the joint venture never made profit in the last five years, forcing the Japanese firm to exercise the sale option to pull back its investment.
NTT DOCOMO had acquired the stake from Tata Sons which will now purchase back the entire stake. Tata Sons at present has 60 per cent stake in Tata Teleservices. “Following its board meeting on April 25, NTT DOCOMO has announced that it plans to exercise its sale option under the shareholders agreement as soon as the conditions for such exercise are met,” Tata Sons said in a statement.
“As also stated by NTT DOCOMO, it is not possible to predict how events will unfold; however, Tata Sons is cognizant of its responsibilities, and will act keeping in mind the interest of all stake holders and in accordance with law,” the statement added.
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Tata Sons further said that Tata Teleservices would continue to be an integral part of the Tata Group.
Under the agreement, DOCOMO holds the right that its Tata Teleservices shares be acquired for 50 per cent of the acquisition price, which amounts to Rs.7,250 crore or at a fair market price, whichever is higher, in the event that Tata Teleservices fails to achieve certain specified performance targets as per the share purchase agreement.
“In the event that Tata Teleservices fails to achieve performance targets by the end of March 31, 2014, DOCOMO would exercise its rights on or before June 2014. DOCOMO expects to sell its Tata Tele shares in accordance with the agreement. It is uncertain how the option will be performed, however, DOCOMO is not able to predict how events will unfold. The effect on DOCOMO’s corporate earnings for the fiscal year ending March 2015 can not be forecast. At this time, due to these uncertainties,” DOCOMO said in a statement.
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According to analysts, this is the beginning of some of the foreign telecom majors to exit from the Indian market”. NTT DOCOMO’s exit signifies continued headwinds being faced by the challengers in the Indian telecom market. With huge investments required by operators towards renewal and data services spectrum, the consolidation process is expected to accelerate,” said Shobhit Khare, Vice-President Research, Motilal Oswal Securities.