Hope and Despair in Bharti Airtel- MTN Deal

A deal between two business giants create hope and despair equally. Hope because they can provide better service and extent their areas of reach. Despair because they become casual and arrogant. In most cases after mergers they become dominant mentality as there are few who can challenge their superiority in business. The two continental miracle merger of Bharti Airtel and MTN, Indian and South African telecom giants gives this cocktail of hope and despair. Given the code of ethics followed by Bharati one can have less despair and more hope in the betterment of mobile services in two continents. The sooner these two companies get rid of their national roadblocks regarding the merger the better for the telecom users.

The Times of India writes (3 October 2009)


An alliance between India's biggest mobile phone operator Bharti Airtel and South Africa's flagship telecom firm MTN would have created an entity
with $20 billion in annual revenue and 200 million wireless subscribers spanning continents. The dream was to build the world's third largest wireless operator. But more than just regulatory hurdles punctured it.
Even as people speculate about what made MTN play runaway bride at the altar, South African authorities deny playing spoiler. But the fact is that they insisted at a late stage on dual listing: companies maintaining separate sets of shareholders while joining operations and sharing profits/losses. This wasn't allowed under Indian rules.

The demand became a deal-breaker, having turned a business transaction into a subject of political hardball just before a looming deadline for ending talks. Dual listing demanded India's nod to capital account convertibility and change of company law. It was unlikely these could be hastily pushed through to facilitate one deal. An interim arrangement was thought possible, via Bharti-MTN's two-way acquisition of equity stakes, while the authorities concerned reflected on their respective positions. But the deal's nixing raises questions about the stated official backing for it, Pretoria's in particular.

Though it's not the end of the world for Bharti or MTN, there are lessons here. Commercial entities are doubtless rooted in specific nations and cultures. But we live in a world of growing economic integration. A Bharti-MTN tie-up would have scored a big goal for South-South cooperation, spectacularly signalling the rising clout of emerging markets. South Africa's insistence on MTN's "national character" was, therefore, not only off the mark but also out of sync with the spirit of the transaction. The deal's aim was to create a win-win situation for both firms through the expansion they needed to beat market saturation and to increase competitiveness. South Africa's stand is also baffling given that another national wireless carrier had earlier given controlling stakes to a British firm.

India, on its part, will need to rethink rules on taxation, company law and the exchange rate regime for easier facilitation of cross-border deals involving capital inflows and outflows. If Indian firms are to dream big, an enabling regulatory framework will have to support the kind of bold acquisitions they'll look at to spread their wings. Thanks to globalisation and the consequent unshackling of corporate vision, trade, investment and labour can't but seek to go beyond frontiers. Governments will increasingly be called upon to both keep pace and smoothen the road.

Rich and Poor Mallya

Vijay Mallya the colourful corporate honcho wears many hats at a time. He fancies Tipu Sultan’s sword, Ferraris, latest jets and costliest yachts. After UB group unveiled King Fisher airlines Mallya hogged global limelight for his entrepreneurial adventures. He turned off the low cost airlines cultures and tuned in king on the skies style. This was his successful turn around of the industry. He always broke stereotypes and set high standards.

In the recession affected economy he chooses to be an ordinary industrialist rather than a smart corporate hero. He got submerged in the global corporate fashion of carrying begging bowl to the government quarters for bailout. A month back he applied for a bailout of his King Fisher. He told government authorities that he is almost broke and no money to sustain his airlines. While giving this dark picture about his financial situation he went on to spend lavishly on his personal fancies.

This contradictory lifestyle of Mallya had got him equated with other corporate fraudsters. In USA this double standards of corporate heads are common. While their companies are reeling under meltdown crisis their salaries and lifestyles are the same. They might have chucked out million workers but they have not scaled down their expenses.

In the latest spin off Mallya had stirred public controversy over his buying intention of an island off Monte Carlo. The news report put that Mallya paid between $100 million and $150 million (Rs.500 to Rs.750 crore) for the private island near Monte Carlo. He puffed off the rumour.

Mallya own islands in Maldives and Lakshadweep. He also bought 1000 acres of land in Himalayas. This land is going to be used for mountain tourism. The UB group chairman runs Mabula Game Lodge near Johannesburg in South Africa. This lodge is 12,000 hectares which is one of the largest and finest private game reserves.

The Times of India (23.1.2009) p.13 reports “Mallya’s lifestyle – the sheer lavishness of it – leaves most bedazzled. He has houses around the globe; castles in Scotland, town houses in London, Monte Carlo, Manhattan (Trump Towers), Sausalito and innumerable properties in India. While ‘Niladri in Mumbai and ‘Kingfisher Villa’ in Goa are the best known, he has hidden gems like the heritage, colonial bungalow with the best garden in Ooty, besides houses in Delhi and his home town Bangalore.

His three yatchs: Idian Empress, Indian Princess and Kalizma, his four private jets, his 240 strong vintage car collection, his Force India Formula 1 tem and thoroughbreds not to mention the Porsches, Bentleys, Maserattis and Ferraris make Mallya the most colourful of Indian businessmen.”

One should not complain about Mallay’s lifestyles. As long as he keep his business profit and loss to himself. During profit session he did not help Government with funds nor he gave a good sum for the social cause. But he came to the government to eliminate his loss and asked for waiving off the pending arrears with AAI and oil PSUs. This is totally contradictory and shames him in the eyes of public. Whatever he fancies is tabloid news and it helps others to compete for such a lifestyle. Although it negatively races the consumer culture it can be allowed. One thing which cannot be tolerated is his selective application of rich and poor status of himself according to the situations. If he wants social support and government aid he should help both when his finances are sound.

Satyam: One among the many corporate frauds

A head reeling corporate scandal has been exposed. Satyam the fourth largest software giant of India has finally agreed its misdeeds. The fraud is above Rs.7000 crores. In the own words of Ramalinga Raju, 54 year old USA MBA returned founder chairman of Satyam “The gap in balance sheet arose because of inflaed profits over several years—Every attempt to eliminate the gap failed—It was like riding a tiger and not knowing how to get off without being eaten--. Reacting to this many of India Inc members termed it as an “isolated case”. When we dig deep into other corporate finances it will be clear that many are involved in such kind of fraudulence. In the past Worldcom, Xerox, Enron, Daewoo motors and other corporate bigwigs fell to the scandal games. The recession webbed AIG, Fannie Mae, Fradie Mac, General Motors, Citibank, and other companies point towards the spiraling corporate crisis for a long period of time. It is a matter of time and luck for others to get trapped by the public for forgeries and frauds.

Private sector came with a big bang accusing public sector companies as unaccountable and inefficient. After the full circle it is clear there is no thick line between the two. Whether public or private there is a thin line of ethics. What we need urgently to reform the corporate and any other sector of the society is generating higher ethical standards in all walks of life. The common problem across the board is the absence of moral values, responsibility shouldering and accountability.

After TCS, Infosys and Wipro, Satyam holds the big name in the Indian software. The company is listed in the NYSE. It has 185 Fortune 500 companies with 53,000 employees on its pay roll which cost Rs.5040 last year. Following the World Bank’s debarring Satyam for 8 years for data stealing, investors’ objection to buying of Ramalinga Raju’s family companies like Maytas Properties and Maytas Infra for $1.56bn, DSP Merrill Lynch contract cancellation due to material accounting irregularities and other complex issues, Raju decided to surrender.

In collision with auditors and other important players, Satyam has fudged its accounts and balance sheets. In the Q2 September 2008, company announced a revenue of Rs.2,700cr. But the actual income was Rs.2,112cr which was less than Rs.688 cr lesser than the actual revenue. A 24% inflated revenue projection to boast to the shareholders and attract more investors. It also inflated cash and bank balances of Rs.5,040cr, Rs.376cr non-existent accrued interest, understated liability of Rs.1,230cr and overstated debtor position of R.490cr. The shareholders of Satyam are worst affected. The crisis wiped out Rs.9,376 crore in one day. From Rs.179.1 per share it fell down Rs.39.9 which is a loss of 78%.

Despite the presence of world’s best auditing company – Pricewater Coopers, M. Rammohan Rao, the dean of Indian School of Business, Harvard University’s Krishna Palepu and former cabinet secretary T.R. Prasad in the board of Satyam the scandal has happened. Pricewater Coopers, the company’s auditors, board members including Dr. Rammohan Rao should be penalized for oversight into this mega scandal.

More heads will roll if the scam is investigated length and breadth. Who’s who of the Indian governance system may have to face the axe. Due to the many political and crucial skeletons hidden in the Satyam cupboard, the full truth may not be out. Ramalinga Raju with the help of prorich pro criminal lawyers will come out on bail and roam freely with little dented image. After all his acquired wealth and real estates can keep his generations to come in the high social pedestal. Those who have money will be revered by the millions. This scandal is a death bell rang to the rich people, intellectuals, media and corporate world. They must organize their knowledge and wisdom properly to advise investors. Till then people like Ramalinga Raju can brand his company “Satyam” – truth and do Asatyam – false deeds.

Corporate Contradictions

Millions of job cuts, mad rush for bail outs and sad declaration of bust outs are common today in the corporate world. In the last one year, United States corporate companies have slashed 24 lakh jobs. Chinese companies are packing off their workers and sending them back to their home villages. Sensing the trouble from laid workers, Chinese government is sending army to the rural hinterlands to closely watch the job lost youth. More than 6 lakh jobs were lost in the textile sector alone in India. Jet Airways came close to sending thousands of its crew members home without giving advance notice. Thanks to the arm-twisting of political parties, the pink slips were withdrawn overnight. Reliance Industries is planning to layoff its 6000 senior executives countrywide.

In the first sign of economic crisis, jobs are taken away. The young, hardworking and aspiring people are first thrown out. They are in the company for few months and proving their worth. Before they gain the total confidence of the top management, recession plays the killer role. Without any concern and consideration, new entrants are sacked. First, they are not exposed enough to seek legal remedy. Second, they have extra patience and no knowledge to revolt against the management. Three, the freshers may not have enough collectivity and resources to refuse the termination orders.

An impassionate analysis into the current crisis reveals that there are multiple contradictions in the corporate governance. On the one hand, the corporate companies are running panic to government to bailout from the financial crisis. From American International Group Inc (the insurance giant) to Lehman Brothers to Fraddie Mac to General Motors to India’s King Fisher all the companies still live in lavish lifestyles. The corporate honchos in these companies have not scaled down their living standards. They still saty in the same billion dollar paid villas, fly in the personal jets and throw company money in millions for pure personal pleasure.

$150 billion bailed out American International Group Inc has seven planes in its kitty. Citigroup Inc, Wells Fargo & Co, Bank of America Corp JPMorgan Chase & Co and Morgan Stanley received $120 billion as bailout package from the United States government. Yet their executives fly in their corporate jets which suck $20,000 for fuel per month.

According to the Associate Press analysis, US banks which were bailed out by the government last year awarded $1.6 billion as salaries, bonuses and perks in the recession affected period.

Mukesh Ambani gifted his wife Rs.250 crores worth private jet for her birthday. To outsmart his brother, Anil Ambani gave Rs.450 Italitan made yacht to his wife Tina on her birthday. If these corporate heroes were concerned about their employees welfare the first step they should have taken is prune their expenditure and perks to the top executives rather than showing door to the hardworking young people.

There is a silver-lining in this dark corporate cloud. Tatas are different. Keeping up their tradition of employees care, Ratan Tata steps forward and takes care of his employees first. Even he burns his finger and pocket but safeguards his employees. May be that is the reason behind the heavy attachment of Tata employees to their companies. Karamvir Kang, the manager of Hotel Taj Mahal in Mumbai performed his hotel duty despite his wife and children were charred to death. The mental wherewithal of Taj Hotel employees shown during and after the 26/11 firing demonstrates the extraordinary Tata spirit. He had shown the same spirit during the Singur crisis. One of the first demands he put to the Government of West Bengal was employees safety.

We need more Tatas for India and the world. The corporate governance should have ethics as the baseline. Any effort to forego business ethics and social responsibility will boomerang on them sooner or later. The much touted CSR – Corporate Social Responsibility should not be a mere publicity stunt. Without delivering employer responsibility they cannot be socially responsible.