It’s Official, NTT DOCOMO Selling 100% Stake In Tata Teleservices; Exiting India

In last couple of days rumours have been rife that NTT DOCOMO, Japanese mobile solutions behemoth has decided to exit out of their Joint Venture with Tata Teleservices.

According to an announcement made couple of hours back, their board of directors have resolved to exercise option for the sale of the company’s entire stake (1,248,974,378 shares, or about 26.5% of outstanding shares) in Tata Teleservices Limited (TTSL), a DOCOMO-affiliated company accounted for by the equity method, as soon as the conditions for such exercise are met.

This stake sale has come about because Tata Teleservices has failed to achieve performance targets set when they made the JV agreement.

Tata Docomo has been losing subscribers in hordes over past couple of years. Infact, they have taken the biggest hit due to mobile number portability and inactive number going out of the system. In early 2011, Tata Docomo had close to 100 million subscribers and were fourth largest operator. However, except for couple of months since, they have only lost their subscribers to other operators.

Even in the latest TRAI report for Feb 2014, where over 10 million new mobile subscribers were added, Tata lost close to 50,000 existing subscribers. Their market share is now less than 7 percent, which closer to 10 percent in 2011. Tata Docomo is currently left with shade over 63 million subscribers. Even Aircel has more subscribers than Tata at 69 million.

About NTT Docomo’s investment in TTTSL, they had invested 252.3 billion yen (Rs. 150 million) in March 2009 including acquisition cost and additional investment of 14.4 billion yen (Rs. 8.6 million) in May 2011. As of march 31st 2014, they have 26.5% stake in the company.

The press release clearly states the following:

DOCOMO, TTSL and Tata Sons Limited (Tata Sons), Tata Group’s holding company, concluded a shareholder agreement when DOCOMO entered into a business alliance with TTSL in March 2009. Under the agreement, DOCOMO holds the right to require that its TTSL shares be acquired for 50% of the acquisition price, which amounts to 72.5 billion Indian rupees (or 125.4 billion yen1) or a fair market price, whichever is higher, in the event that TTSL fails to achieve certain specified performance targets (the above-mentioned option).

In the event that TTSL fails to achieve these performance targets by the end of the fiscal year ended March 31, 2014, DOCOMO plans to exercise the above-mentioned right in or before June 2014.

DOCOMO expects to sell its TTSL shares in accordance with the agreement. It is uncertain how the option will be performed, however, and DOCOMO is not able to predict how events will unfold. The effect on DOCOMO’s corporate earnings for the fiscal year ending March 31, 2015 cannot be forecast at this time due to these uncertainties.

It will be interesting to watch what happens next. In all probability, one of the larger Top 3 operators may buy Tata’s business, afterall 63 million subscriber still remain with them.

What do you think?