Reliance Communications expecting to shortly sign a merger deal with Aircel

Industry:    2016-06-24

NEW DELHI: Reliance CommunicationsBSE -5.43 % (RCom) and the promoters of Aircel are set to ink a “binding definitive” pact in around two weeks to merge their wireless businesses, which would create a strong No. 4 telco through India’s first such pan-India deal.

“RCOM and Maxis Communications Berhad (MCB) and Sindya Securities and Investments Private Limited (Sindya), the shareholders of Aircel Limited (“Aircel”), expect to sign binding definitive documentation and announce the proposed transaction for the combination of the Indian wireless business of RCOM and Aircel very shortly,” the Anil Ambani-owned carrier said on Thursday.

Meanwhile, sources said RCom’s customers of its erstwhile CDMA services will be able to start using 4G services shortly, starting with users in Mumbai from July 1 under the company’s spectrum sharing agreement with Reliance Jio Infocomm. Customers in Delhi, Kolkata, Gujarat and Andhra Pradesh will gradually follow in the first phase.

RCom’s stock rose sharply on the merger news, ending the day 4.2 per cent higher at Rs 49.70 on the Bombay Stock Exchange, outpacing a 0.9 percent rise in the benchmark index.

“It’s a done deal. Just formal approvals are left to be tied up,” said a person familiar with the discussions. “The deal should close in the next six to seven months.”
RCom will demerge its wireless business and merge it with the existing unlisted Aircel, with promoters of both sides owning 50 per cent each in the new entity. “RCom shareholders will receive free listed shares in a new combined wireless entity,” another person said.
The new entity will be rebranded and remain unlisted initially. Promoters of both companies will have equal board representation.

“The CEO and the top management level will be decided in due course but it will be the best man for the job,” the first person said. Currently, Gurdeep Singh is the chief executive at RCom’s consumer business, which includes wireless, while Kaizad Heerjee is the CEO at Aircel.

RCom and Aircel will each transfer Rs 14,000 crore of their debt into it. RCom has a gross debt of Rs 42,651 crore while it is Rs 23,436 crore for Aircel. Russia’s Sistema will hold 10 per cent in the listed RCom as per a parallel ongoing process but the Russian company, which operates under the MTS brand in India, won’t have any board representation in the new entity.

The combined entity will need to pay around Rs 500 crore to the telecom department to liberalise RCom’s 2G airwaves in 14 circles for the balance five years till permit expiry in those service areas. Liberalise, in this context, means paying a market-linked price to the government for spectrum which wasn’t auctioned a pre-condition for any M&A, spectrum sharing or trading deal.

Sources had told ET previously that once the synergies — estimated at Rs 2,500 crore annually — get fully panned out post-merger, the plan is to bring on board another foreign investor within a year who will infuse $500 million (Rs 3,400 crore).

The RCom-Aircel deal would create an entity with revenue of about Rs 25,000 crore annually, earnings before interest, taxes, depreciation and amortisation of about Rs 6,000-Rs 6,500 crores and an Ebitda margin of 25 percent, with cash flows of around Rs 3,000 crore a year to start with. Idea CellularBSE -3.79 %, at No. 3, posted FY15 revenue of Rs 35,967 crore on an Ebitda of nearly Rs 12,000 crore and an Ebitda margin of 33.1 per cent.

RCom-Aircel-MTS combined will hold around 19 per cent of the total spectrum in the country across of the 4G bands of 800 MHz and 1800 MHz and 3G bands of 2100 MHz and 900 MHz. It will have around 180 million subscribers. This compares with nearly 175 million for Idea, over 252 million for market leader Bharti AirtelBSE -3.71 % and nearly 198 million for Vodafone India, as per sector regulator data at April end.

“The combined entity will have around 13 per cent revenue market share and will look to close down on Idea which has around 17 per cent,” the first person said. RCom’s tower portfolio and its undersea cables arm Global Cloud XChange will be kept out of the ambit of the merger, and the process to monetise these assets are on, sources said.
print
Source: