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In, out & all the way up for the M&A man
[January 07, 2006]

In, out & all the way up for the M&A man

(The Economic Times (India) Via Thomson Dialog NewsEdge)When California-based NRI and chairman of Sterling Infotech group C Sivasankaran declared a couple of years ago that I will be the first Tamil businessman to become a billionaire by listing his ISP venture DishnetDSL in the ADR market, not many in the corporate world took him seriously.

The ADR listing did not come through. Siva, who earlier aspired to acquire the public sector competitor VSNL, later sold Dishnet to VSNL after it was acquired by the Tata group.

Last week, Siva did a hat-trick by clinching one of the biggest telecom deals in recent times. Maxis Communications of Malaysia signed an agreement with the Chennai-based Sterling Infotech group to acquire his three businesses - Aircel, Aircel Cellular, Dishnet Wireless - for a total valuation of Rs 4,860 crore.

Siva is known for his penchant for mergers and acquisitions (M&As). Till 1990, he was a small-time businessman, little known in the corporate circles. He started his business in 1983 with Sterling Computers, which assembled and marketed personal computers. In the late eighties, he triggered a price war in the personal computers market and gave a tough fight to big brands. He came under the spotlight in 1989 when he made a thunderous speech before the then Tamil Nadu chief Minister M Karunanidhi. Siva questioned the approach of state-level agencies in selecting private promoters on the basis of caste rather than the merits of project proposals.

This brought him closer to the rulers. However, a couple of joint ventures he planned with the state-level agency Tidco and also a mega housing project did not take off.

He also tried to venture into publishing Yellow Pages and a phone directory. After this he decided to focus on three key areas - information technology, internet, telecom and broadcasting. In February '04, he floated Sterling Infotech as a holding arm to enter areas such as cellular service, internet and DTH. As part of expanding his empire, he acquired Arihant Towers for Rs 24 crore.

Even as he was pursuing his ambitious business plans through his political clout, Siva again stole the limelight towards the end of 1994 when he struck a deal with Essar group and acquired a 67% stake in the closely held Tamilnad Mercantile Bank (TMB). Essar sold the stake in return for the cellular licences from Siva.

Thanks to the infighting among the Nadar community, the original promoters of the bank, TMB had slipped into the hands of Essar in September 1994. But Essar could not get the clearance of the RBI for the transaction and it passed on the stake to Siva.

The powerful Nadar community, with the support of major political parties, waged a long battle with Siva for retrieving the bank. They also raised a caste bogey as he hails from the Mudaliar community. But he adopted a tough posture and demanded Rs 155 crore for parting with the stake. Both the parties entered into an agreement. But the community took a long time to raise the money.

Meanwhile, as in the case of Essar, the RBI did not clear the transaction in favour of Sterling group. Finally, in '01, the community got back a 34% stake from him for Rs 81 crore. In February '04, it struck another deal with him to regain the balance 33% stake for Rs 130 crore.

Siva does not believe in sticking to a venture or business for long. I don't mix sentiment with business. My job is to build a business, create value and make an exit when there is an opportunity, he has said more than once.

Clear understanding of the business needs has been aiding us to exceed consumer expectations and to continue remain on the top, he had said.

In April 1999, his Aircel Cellular launched its service in the Tamil Nadu telecom circle (other than Chennai). In June '03, he bought Vodafone's 20.76% stake in RPG Cellular. In December '03, he acquired the RPG group's 79.24% stake in RPG Cellular for Rs 209 crore.

In April '04, the subscriber base of Aircel in the two telecom circles (Chennai metro and TN telecom circle) crossed the one-million mark.

Prior to this, Siva was working on Dishnet's ambitious $1.25bn submarine cable project - SEACN (South East Asia Cable Network), which was slated for commissioning in August '03. However, this hit a major road block, after the company's foreign strategic partner, US telecom major TyCom, withdrew its earlier commitment to bring in $150m by way of equity investment into the project.

In March '04, he sold DishnetDSL's broadband and ISP business to VSNL (part of Tatas) for Rs 270 crore.

In April '04, Siva bought Turner Morrison' 65.4% stake in the Barista Coffee chain for Rs 30 crore. It led to the consolidation of the coffee vending business with Siva's Fresh & Honest. In September '05, Fresh & Honest entered into a tie-up with IllyCafe, a $20m Italian company, for installing 6,000 coffee vending machines. As a support platform, Siva also promoted a chain of health restaurants and fitness centres under the Aiwo brand.

Meanwhile, after consolidating his cellular business, he was on the look out for a buyer to reap a windfall. He started negotiating with virtually all the top telcos like Bharti, Hutch and Idea. While he was expecting a price of Rs 2,000 crore (at least 10 times of EBIDA), he got offers for Rs 1,000 crore. Finally, in June '05, Hutchison Essar formally announced the acquisition of Aircel and Aircel Cellular from Sterling Infotech. The consideration was around Rs 1,400 crore.

But the deal did not go through due to non-agreement between the two parties over valuation, besides failure to obtain the Department of Telecommunication's approval for intra-circular acquisition. After the expiry of the agreement with Hutch, his company entered into a non-binding agreement with AK Sistema of Russia to facilitate a strategic equity pick by the Russian company in Aircel.

When this too failed to move forward, Siva started looking for investments from private equity players. He initiated discussions with Maxis of Malaysia, which joined hands with the promoters of the Apollo Hospitals group to acquire Aircel at a valuation of Rs 4,860 crore.

For many, entrepreneurship means making money by running businesses profitably. For Siva, it is one step ahead. He makes more money by selling businesses profitably.

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