The Tata Teleservices-Hughes Tele.com saga has finally come to an end today after the sponsors of the two sides today signed agreements that would eventually make Hughes Tele, which operates basic services in Maharashtra and Mumbai, a subsidiary of Tata Teleservices.

The 50.83% stake in Hughes Tele.com will cost the Tatas around 
Rs 360-odd crore, besides the cost of acquiring shares in the open offer. The total cost of acquiring the equity of the sponsors (assuming it is redeemed after seven years) will be over Rs 700 crore.

Tata Teleservices is acquiring Hughes Tele by issuing preference shares called redeemable non-cumulative convertible preference shares (RPS), as part of the consideration of the deal. Tata Tele will issue 71.43 crore RPS in favour of the Hughes Tele sponsors to acquire 71.43 crore equity shares of the latter. These RPSs have a face value of Rs 10 and carry an interest coupon of 0.1% and are redeemable either at the end of 51 months at a price of Rs 8 and or at the end of 75 months at a price of 
Rs 10.

In terms of net present value of the preference shares, the acquisition cost works out to Rs 5.1 per share. The open offer will be made at a price of around Rs 7.20, based on the 26 week average share price on the Bombay and National Stock Exchanges. "This is because the consideration paid to the Hughes Tele sponsors in the form of RPSs has a net present value (of Rs 5.1 per share) which is less than the six month average price of Hughes Tele," said Ishaat Hussain, director, Tata Sons.

Tata Sons has also provided a put option for the redemption of the RPSs. Thus, if at the time of redemption, Tata Tele cannot redeem the RPSs, then Tata Sons can step in to redeem the preference shares. Besides, there is an option to convert the RPSs into equity. However, the conversion rate is very high, Rs 500 per share or the market rate of the share, whichever is higher. This is intended to discourage such conversions.

Hughes Tele will also be restructuring the debt owed by it to Hughes Network Systems (HNS) the main foreign promoter of Hughes Tele. "Of the $75-m debt, $50m will be converted into long-term restructured debt that will be interest free," said Deepak Dutt who represents HNS. The Tatas will be offering RPS against the balance debt of $25m to HNS.