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US fund lobs better offer for Flag Telecom

Mumbai, Nov. 19: Pivotal Private Equity has sprung a $220-million offer for Flag Telecom Group, a US network major Reliance is close to snapping up.

The Arizona-based fund, a wild-card entry in the race for Flag, has offered $13 million more than Reliance’s $207 million, though there was no word from either side whether Pivotal’s entry would rupture the deal.

Flag Telecom, in its filing with the Securities and Exchange Commission (SEC) today, said Pivotal had written to it saying it was ready to sign a pact on terms similar to that of Reliance Infocomm.

Pivotal has indicated that it would be willing to buy the cable system for not less than $220 million, or $110 for each of the 20 lakh outstanding shares. Reliance Gateway had valued each share at $95.61, a premium of 50 per cent on the stock’s market price then.

Flag said Pivotal’s proposition was subject to confirmatory due diligence, but not to a financing contingency. The board met on Tuesday to discuss the bait and told SEC that Pivotal’s is a “superior” offer.

Flag intends to start discussions with Pivotal under amalgamation conditions, but its board is in favour of going with Reliance Gateway, a wholly-owned subsidiary of Reliance Infocomm. That was apparent in Flag’s assertion that “there can be no assurances that an agreement will be reached with Pivotal”.

Reliance Infocomm spokesperson Amit Khanna did not comment on Pivotal-Flag Telecom talks, but said he was confident that its own pact would not be affected.

On October 16, Reliance Infocomm entered into an memorandum of understanding to acquire all shares of the Flag Telecom Group in deal that was valued in rupee terms at Rs 1,000 crore. The buyout plan was seen as a big shot in the arm for the Ambanis, who have presided over Reliance Infocomm’s blistering growth in subscribers to five million.

The Flag Telecom board had approved the acquisition by Reliance Infocomm, but had called a meeting in December to seek shareholders’ approval.

The company, listed on the Nasdaq and London Stock Exchange, had a peak market capitalisation of $7 billion. It had filed for bankruptcy under Chapter 11 last year, but had successfully wriggled out of the cleft.

Its submarine cables spanned 50,000 km in four continents across the globe, with hubs in West Asia and the US. Asia and Europe were in its sweep as well.

Flag counts 180 leading operators among its customers, including the top 10 international carriers. Its buyout would have helped Reliance offer a variety of telecom products and services to customers, mainly the big telecom carriers, internet service providers and other bandwidth-intensive users like broadcasters.

Flag’s global fibre-optic network will complement Reliance’s own next-generation digital network in India and enable the company to cater to customers world wide more effectively by facilitating end-to-end solutions.

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