The country's No. 1 telecom carrier Bharti Airtel has scrapped its Rs.700-crore deal to buy the subscribers ` and assets of Loop Mobile over delay in government approval, bringing the curtains down on what would have been India's first M&A in the sector since 2008. Airtel's proposed deal with Mumbai based Loop had been awaiting clearance for over eight months. The scrapping of the pact will affect some 120,000 subscribers of Loop as the operator's licence is set to expire this month.
“Loop had late last evening sent us an email noting that DoT (department of telecommunication) approvals had yet not been received and had also noted that it was way beyond the time envisaged for securing such an approval,“ Bharti Airtel said in a statement to the stock exchanges late on Wednesday .
“In light of this update, and the fact that Loop's mobile licence is set to expire at the end of the month, we have decided to terminate the discussions with regard to the transaction for acquiring the subscribers of Loop,“ the company added.
Surya Mahadevan, chief operating officer of Loop, said Bharti Airtel's decision will cause a huge loss to the company , which won't be able to migrate its subscribers to Airtel as originally planned. Loop, owned by the Khaitan family , had hoped to repay its creditors with part of the deal proceeds.
All customers of Loop must port out of the network by November 29, when operations must be terminated, he added.The closure of business also means curtains to a job for Loop's 10 senior management staff and some 190 employees.Mahadevan said movement of the employees was never on the cards. Moreover, no termination settlement is on the cards as of now, he added.
At the time the deal was signed, Loop had about 750 employees, and negotiations were on to include some staff transfer to Airtel. The technology , network maintenance and relationship teams were particularly hopeful of getting transfer packages, said a senior staffer. Yet, since the deal was signed, the fear was that most would be left without jobs, which led to a mass exodus from the company earlier this year.
Loop had, on March 10, sought deal clearance from DoT to sell its subscribers -three million at that time -and its network assets via a slump sale. The transaction, however, fell foul with the sector regulator and subsequently the DoT raising concerns that it would flout mobile number portability (MNP) rules and cause a revenue loss to the government as the users wouldn't be paying the stipulated Rs.19 fee to change operators, as stipulated under MNP. DoT also says Loop owes it some Rs.800 crore, a matter which is in the courts.
Loop wrote to DoT in mid-October, by when its subscriber base had dwindled to about 1,200,000 -seeking speedy clearance of the deal and offered to limit the agreement to just a transfer of its subscribers, as there wasn't enough time for it to transfer its network equipment before the November 29 deadline. It also agreed to pay the porting charges for customers who wanted to move to another operator, including Airtel. “Its failure is yet another sign that telcos will have to survive or die based on promoters' will to invest,“ said a company official.
Arpita Agrawal, telecom leader at PwC India, said that post MNP, the government should set out clear rules on how customers, who form one of the key components of M&A should move from one company to another.
Speaking at the India Economic Summit on Wednesday , Telecom Minister Ravi Shankar Prasad said he had set up a panel to revisit policies, including whether there is a need to re-look at the M&A guidelines. That's, however, in the medium term, at the earliest. For now, it's a grim future for Loop.
“It was too late for Bharti to get value from this deal at this time,“ said a person close to the dealings between the companies. Banks have lost Rs.700 crore because of Trai and DoT. Loop will now begin a winding up process, during which banks will sell off assets that were mortgaged to recover debt.