VSNL acquires Tyco for $130 million

Reliance loses race to buy 60,000 km cable network.

Videsh Sanchar Nigam (VSNL), a Tata group company, today announced the acquisition of Tyco Global Network for $130 million, or Rs 585 crore, in a cash deal.

With the acquisition, VSNL pipped to the post Reliance, another serious bidder, especially after it bought over US-based FLAG Telecom in January for $211 million.

The acquisition is being housed in VSNL America, which recently received the US Federal Communications Commission's (FCC's) approval to provide international telecommunications services from the US.

VSNL expects to close the deal in 6-9 months. The acquisition will give the company control over a 60,000 km cable network spread over three continents.

"The price that VSNL has paid is a fraction of Tyco's total cable assets. It is a unique global network, with assets of almost $2.5 billion," Tata Industries Managing Director Kishor Chaukar said.

"VSNL was short on bandwidth, information, and technology. With this deal no one will be able to beat us," Chaukar said, pointing out that Tyco's cables had a data transfer capacity of 10-15 terabit (1 trillion bit per second).

Of this, the unlit capacity of the fibre was 10 times the operational capacity being used, he added. The Tyco cable has 100 clients, which include some of the world's largest data carriers.

"The deal gives immense flexibility to VSNL in terms of connectivity," Chaukar said, adding the company would float a special purpose vehicle for the acquisition.

The acquisition would be funded through internal accruals and from the sale of VSNL's equity in the Intelsat and Newsky satellites, said Amitabh Khanna, chief financial officer of VSNL.

The company expects Rs 780 crore from the sale of Intelsat equity and under Rs 100 crore from the Newsky sale. VSNL also had Rs 1,600 crore in cash reserves, Khanna pointed out.

Chaukar said the deal had given VSNL an unassailable lead in cable capacity but that would not stop the company from further acquisitions. "We have not closed our eyes to any other opportunities overseas," he said.

"The agreement is a major step forward in our drive to offer our enterprise and carrier customers seamless, end-to-end telecommunications solutions that circle the globe," VSNL Director (Operations) N Srinath said.

"The agreement, coupled with the submarine cable we are planning to connect India with Singapore, will give our customers a new choice in global data services. Further, the timing of this transaction is well suited to our international expansion plans," Srinath added.

"This agreement will allow us to provide our enterprise and carrier clients with customised and robust connectivity solutions under one trusted global brand," said Dave Ryan, chief operations officer, VSNL America, adding that the agreement would also give multinational customers a local point of contact for their networks.

The acquisition will give VSNL a leg up in its expansion plans. VSNL has recently set up operations in the US, Singapore, Europe and Sri Lanka.

The Tyco deal marks the third successful global acquisition for the Tata group in the past one year. In August, Tata Steel acquired the steel business of NatSteel of Singapore for $283.1 million or Rs 1,313 crore. In March, Tata Motors acquired South Korea's Daewoo Commercial Vehicle for $102 million, or Rs 460 crore.

Apart from these acquisitions, the group is investing $2 billion in Bangladesh for setting up steel, power plants and fertiliser units there.