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Ambani's plan isto swap his own 66 per cent stake in India's number two operator for new MTN shares, leaving him with a 34.9 per centstake in its expanded capital.
A rivalry worthy of a Wilbur Smith novel is brewing between the two titans of Indian telecoms. Fittingly, the latest theatre of conflict between Anil Ambani, chairman of Reliance Communications, and Sunil Mittal, his counterpart at Bharti Airtel, is Smith's homeland, South Africa. Whichever of them wins control of MTN, the biggest South African mobile operator which has been in talks with both, will run a combined operation with a claim to more than 120 million subscribers across India, Africa and the Middle East.
For the moment, fortune is favouring Ambani. Bharti Airtel withdrew angrily from discussions with MTN a fortnight ago, firing off an ill-judged press release that may well scupper any attempt to revive discussions. Proffering a more politically acceptable deal structure that will leave both MTN and RCom as separately listed entities, Ambani is today starting his second week of due diligence.
The deal he is proposing has a strong chance of success. Dressing it up as a reverse takeover of RCom by MTN, Ambani has defused much of the South African economic nationalism that thwarted Bharti's cruder takeover approach. Ambani's plan is to swap his own 66 per cent stake in India's number two operator for new MTN shares, leaving him with a 34.9 per cent stake in its expanded capital, the most he could acquire without triggering a mandatory tender offer. With his stake in Reliance worth about $17 billion, some $600 million less than the MTN shares he would be acquiring, Ambani will have to offer a cash top-up. How big this is depends on his desire to control MTN. The more he pushes for management control, the larger the premium he will have to pay.
But if Ambani plays his cards right, he could end up the largest shareholder in MTN while continuing to call the shots at RCom. When The Lion Feeds, indeed.
Head in the cloud
Who has not, when confronted by the daily exasperation of office technology, questioned the parenthood and purpose of information technology departments? Advocates of computing in "the cloud" hope to make them largely superfluous. Instead of going to the effort of installing and maintaining computing locally, all those tricky applications, not to mention storage and data processing, can be provided centrally from shared infrastructure. Merrill Lynch estimates that more efficient management of resources - such as servers - could provide services at a cost five to 10 times cheaper than that provided by a more traditional in-house approach.
The revolution has been a long time coming. Computing on tap as a concept was floated as far back as the 1960s. Sun Microsystems has been actively pushing grid, or utility, computing for almost a decade. What has changed is the rise of viable business models such as software-as-a-service. Salesforce.com is the most high-profile of these companies, but Oracle, Microsoft and SAP are all investing in subscription-based services aimed at small businesses - typically those with fewer than 1,500 employees.
So there are some valuable niches to exploit. On current growth rates, Saas sales should double between 2006 and 2011. And if subscription services can show real economies of scale in distribution and sales - not something that Salesforce.com has yet demonstrated - sky-high valuations for Saas companies might be justified.
But the segment's sales of about $3 billion remain a small fraction of a global $270 billion software market. The impact of inertia should not be discounted either. Mainframes were superseded by servers decades ago but IBM still makes and maintains them. Important security and regulatory questions have to be answered before large companies will consider the cost of moving any form of critical data into the cloud. To hope for more than slow, if steady, progress over several years is to build castles in the air.
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