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May 6, 2002 | 0945 IST
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Tatas in fresh talks for AIG stake in Idea

Arijit De

The Tata group has started fresh negotiations with American International Group to buy out its equity in Idea Cellular, formerly known as Birla-Tata-AT&T Ltd.

AIG holds around 3 per cent stake in the merged entity. While the original shareholding structure had laid down that the Tatas, Birlas and AT&T would hold 33 per cent of the equity each, the holding structure of Idea Cellular had to be altered to include AIG.

"We are in talks with AIG to buy their stake. Our aim is to get back to the original shareholding structure," a senior Tata executive said. Talks were jammed on the issue of price, he added. The price was not disclosed.

It is learnt that various merchant bankers have recently made presentations to Idea Cellular for possible fund-raising options. The valuations of the cellular company range from $700 million to $1.6 billion.

Analysts feel this can take the valuation of AIG's stake to something between Rs 1-1.5 billion. AIG might ask for a higher price because Idea Cellular had been growing at a quicker pace than the industry, they said.

AIG had earlier declined to exit Tata Cellular on the grounds that its 10 per cent equity deserved a better price. Subsequently, fund infusion into Tata Cellular prior to its merger with Birla AT&T brought down AIG's stake.

AIG is also a stakeholder in BPL Communications, which is to merge with Idea Cellular.

Last fiscal, the cellular major grew 152 per cent against the industry average of 80 per cent.

Idea Cellular will start operations in Delhi, India's largest cellular circle. The longer AIG held out, the higher would be its valuation, sources said.

What makes the situation delicate for the Tatas is that they have two joint ventures with AIG for general and life insurance. Apart from insurance, AIG proposes to set up its IT-enabled back-office in Mumbai.

Sunil Mehta, country head and chief executive of AIG, said the move provided economies of scale since India was the information technology hub.

AIG is also considering setting up a business process outsourcing unit in India, according to Frank G Wisner, vice-chairman.

Currently, the company is evaluating whether India will be the sole destination for the centre or whether it should be distributed in India and other countries.

Meanwhile, the merger between Birla-Tata-AT&T Ltd and BPL is likely to run into obstacles with the department of telecom and financial institutions raising objections.

DoT is expected to raise objections on the grounds of the creation of a monopoly.

The financial institutions are unhappy because they were not consulted about the merger.

The cellular phone subscriber base of the combined entity currently stands around 1.7 million, of which BPL has a customer base of roughly 700,000 in the Mumbai circle and about 200,000 in the Maharashtra circle. The latter is to be hived off.

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