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Videocon wants Motorola phone biz
Nandini Lakshman, BusinessWeek | May 01, 2008
Few would doubt the global ambitions of India Inc. anymore. Just a week after Tata Motors [Get Quote] acquired Ford Motors' British marquee brands, Jaguar and Land Rover, another Indian company, Videocon [Get Quote], announced it was a suitor for a US icon: Motorola's handset unit.
The company, a manufacturer of appliances and electronics that also has interests in real estate, oil, and power, didn't say how much it would bid, but announced on Mar. 31 that it had contacted Motorola about buying the ailing phone business.
Venugopal Dhoot, Videocon's 54-year-old chairman, is among India's most ambitious businessmen. Along with his two brothers and their families, Dhoot controls 71 per cent of Mumbai-based Videocon. The Dhoots shot into the limelight in 2005 as the buyers of the picture-tube business of France's Thomson for $291 million.
Videocon, which already marketed a range of Japanese consumer appliances from the likes of Sansui, Kenstar, and Akai in India, found itself suddenly in the global marketplace - and liked it. Shortly thereafter it acquired the Indian subsidiary of Electrolux and a year later, in 2006, Videocon made an unsuccessful run at South Korea's Daewoo [Get Quote] Electronics.
So where does Motorola come in? In November, 2007, when the Indian government was awarding fresh telecommunications licenses, Videocon was among the winning bidders. In the next three months, Dhoot says, he plans to launch mobile services in 18 Indian cities and towns.
Consequently, "every major global telecom player is talking to me" he says proudly. "Motorola's handset business dovetails well with my telecom plans," he says. Videocon owns 700 retail outlets selling everything from refrigerators to mobile phones, and Dhoot expects to expand that to 4,000 in the next five years. "That's where my synergy with Motorola comes in," he says.
Motorola says "not for sale"
However Dhoot's plans, and his interest in Motorola, have failed to enthuse many in India. "Videocon has no telecom expertise, and managing a company like Motorola is a challenge," says Nabankur Gupta, a former senior manager at Videocon and now chief executive of a marketing firm.
More importantly, as a typical Indian family-owned business, Videocon has a complex structure of cross-holdings across a web of private companies, with little transparency. Indian headhunters say the top-down style at Videocon has made it tough to attract qualified professionals to the group.
Dhoot responds that he employs plenty of capable managers and that his company has enough cash to fund a bid for Motorola, but declined to provide details. Motorola declined to comment on the matter. But a source familiar with the company's plans says Motorola's management remains committed to spinning off the unit and that there's no "for sale" sign on the business.
Rumors boost videocon stock
Motorola also appears to be a poor cultural and operational fit with Videocon. The company has no presence in the US, where Motorola is based. The Indian telecom market is already overcrowded, with six established players - Bharti Airtel [Get Quote], Reliance Communications [Get Quote], Vodafone, BSNL, Tata Teleservices [Get Quote], and Idea Cellular [Get Quote]. Making a late entry means Videocon will have to fight that much harder to woo mobile subscribers. Instead of buying into a failing handset business, analysts say, Videcon would do better to focus on its new telecom network.
The irrepressible Dhoot counters that his interest in Motorola was triggered by the potential of the Indian handset market. Of the 400 million handsets sold globally last year, 120 million were bought in India. He denies market rumors that he announced his interest in Motorola only to push up the valuation of his company.
Whether he buys Motorola or not, "It will help him earn more when he divests a stake to foreign telecom majors," says one analyst familiar with the company. Dhoot says he is serious about buying Motorola and has every intention of going through with a bid. In any event, the news has stirred Videocon's stock, which climbed by 5 per cent on Tuesday and Wednesday even as the overall Indian market was flat.