May sell stake if company does not meet certain parameters
Japan’s biggest mobile phone operator, NTT DOCOMO, which bought a 26 per cent stake in Tata Teleservices (TTSL) for Rs 13,070 crore a year ago, has an agreement with Tata Sons to sell the stake if the company does not meet certain performance parameters by March 31, 2014.
In its annual report for 2008-09, Tata Sons, the holding firm of the Tata Group, says: “If certain performance parameters and other conditions are not met by March 31, 2014, should the strategic partner (NTT DOCOMO) decide to divest its entire shareholding in TTSL, and should the company be unable to find a buyer for such shares, the company is obligated to acquire the shareholding of the strategic partner.”
The annual report also mentions Tata Sons is obligated to buy the stake at the higher end of fair value or 50 per cent of the subscription purchase price. It also mentions that if NTT DOCOMO sells the stake at a lower price, then Tata Sons would have to pay a compensation representing the difference between such a lower sale price and the price referred to earlier.
“In the event of a breach of the representations and warranties, and covenants not capable of specific performance, the company (Tata Sons) and TTSL are jointly and severally liable to reimburse the strategic partner up to a maximum sum of Rs 2,170.22 crore,” Tata Sons says in the report.
Of the 26 per cent stake bought by DOCOMO, 6 per cent was sold by Tata Sons and other group companies. The remaining 20 per cent stake was sold in the form of new shares issued by Tata Teleservices.
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At the time of the buyout, DOCOMO valued Tata Teleservices at Rs 50,269 crore ($10.38 billion) and each of its 25 million subscribers in 20 circles at Rs 19,334. With this, DOCOMO also got the right to appoint three directors on the Tata Teleservices board.
Later, in accordance with the takeover regulations of the Securities and Exchange Board of India, DOCOMO also made an open offer along with Tata Sons for a 20 per cent stake in Tata Teleservices (Maharashtra), which operates services in Maharashtra and Mumbai and in which Tata Teleservices holds a 37.7 per cent stake.