MP Birla not to dilute stakes in telecom JV

After signing the terms for acquiring the entire 27.5 per cent stake of Ericsson Network Technologies (ENT) in Birla Ericsson Optical, a joint venture (JV) company between the former and the MP Birla Group, the latter is in no mood to either sell additional stakes in the company to the public for raising capital or opt for another partner.

Birla Corporation, the MP Birla Group’s flagship company, currently has a 3.13 per cent stake in the JV, which makes copper and optical telecom cables, and other speciality wires. An official in Birla Corp says ENT had been looking for an exit route for quite some time. 

Svenska Dagbladet, a Swedish newspaper, recently reported that Ericsson planned to lay off thousands of staff, beside considering large additional cost cuts, due to slowing markets. 

“Post this acquisition, we won’t dilute any stakes and will not consider another partner for this company,” Harsh Lodha, chairman of Birla Corporation told Business Standard. He said Birla Ericsson Opticals was already a profitable venture and there was no need to raise additional capital.

Birla Ericsson Opticals' gross revenue was Rs 273.1 crore for 2015-16, with a net profit of nearly Rs 8.5 crore, down 32 per cent from the Rs 12.5 crore net profit in 2014-15.

The MP Birla Group, through its companies, currently owns 38.83 per cent in the JV; ENT owns 27.5 per cent. The other 33.65 per cent stake is traded publicly. After the takeover of ENT’s shares, the MP Birla Group will own 66.33 per cent. The transaction on the entire stake is estimated at Rs 23 crore and expected to be complete by September-end.

Universal Cables, another MP Birla Group company, which owns 13 per cent in the JV, will be leading the share purchase terms and will be deciding on allocation. However, it has chosen not to raise its stake directly. Instead, Birla Corporation, majorly into jute and cement manufacturing, will raise its stake from the current 3.13 per cent to 17.96 per cent; Vindhya Telelinks, another group company, will raise its shareholding from 13.33 to 19.33 per cent. The other 6.67 per cent will be distributed among other companies in the Group.

ENT had expressed its intention in writing to the other stakeholders in Birla Ericsson Opticals to dissolve the JV, which the boards of directots of the respective stakeholders considered and approved in mid-July. 

“For quite some time, ENT didn’t even have a member on the board and, practically, we have been running this company,” said an official in a MP Birla Group company.