In the biggest consolidation deal in the telecom sector, Reliance Communications Ltd announced its long- awaited merger with smaller rival Aircel. The RCom-Aircel combination will create the country’s fourth-largest phone company in terms of customers and revenue.
RCom and Maxis Communications Berhad (MCB) of Malaysia, which owns Aircel, will hold 50 per cent each in the merged entity with equal representation on the board and committees. The merged company will be one of India’s largest private sector companies, with an asset base of over Rs 65,000 crore and net worth of Rs 35,000 crore ($5.2 billion).
Upon completion, the merged entity will also collaborate with a third partner by diluting about 25% equity to raise around Rs 6,000 crore, said sources. Talks have already been initiated with Russia’s Sistema, which already holds 10% in RCom, to invest in the merged company. Once a third partner enters, Reliance and Aircel will dilute stakes on a proportional basis.
“Together with our partners MCB, we are delighted to have taken the lead in consolidation of the Indian telecom sector, first, with RCOM’s acquisition of the wireless business of SSTL (Sistema/MTS), and now, with the combination of our business with Aircel in a 50-50 joint venture with MCB.” said Reliance Group Chairman Anil Ambani.
“We expect this combination to create substantial long term value for shareholders of both, RCOM and MCB, given the benefits of the wide-ranging spectrum portfolio and significant revenue and cost synergies,” Ambani said.
The Reliance Communications board signed off on the deal that has been in negotiations since October last year shortly after the company’s quarterly results were filed on Wednesday.
DEAL TO BE CLOSED IN EARLY 2017
The transaction is likely to be closed in six to eight months in early 2017 and will need regulatory, court and shareholder approvals.
Since acquiring Aircel in 2006, MCB has invested in excess of Rs 35,000 crore in Aircel, making this one of the largest foreign investments into India, not only in the telecom industry but across all sectors. “The magnitude of this investment, and the further equity commitment in support of this deal, are underpinned by MCB’s belief in the long term growth potential of both India and the
Indian telecom sector,” MCB said in a statement.
Aircel is a pan-India 2G operator with 3G spectrum in 13 circles and is credited with the fastest 3G roll-out ever in the Indian telecom space. RCom has a customer base of over 107 million, including over 2.6 million individual overseas retail customers.
The launch of Jio has put pressure on operators to lower costs.
“They (RCom and Aircel) have both been voice players, not data, which is the market opportunity today. To be able to transform to a data player will need serious financial and operational commitment,” said Sanjay Kapoor, former CEO of Bharti Airtel.
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