 "R-Com, Aircel create 4th-largest telco")
In the biggest consolidation deal in India's telecom sector, Anil Ambani-led Reliance Communications and Maxis Communications, promoters of Aircel, on Wednesday said they would merge their wireless businesses to form the fourth-largest telecom operator in the country.
R-Com will demerge its wireless business and transfer it to the new entity, while the standalone business will focus on the enterprise segment and data centre businesses. Sistema will continue to hold 10 per cent in standalone R-Com. R-Com's shares ended the day three per cent higher at Rs 50.
Both R-Com and Maxis will hold 50 per cent each in the new entity.
With 171 million subscribers and a revenue market share of over 11 per cent, the new entity will have a better shot at survival, as competitive intensity picks up.
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The new entity will have an asset base of over Rs 65,000 crore ($9.7 billion) and net worth of Rs 35,000 crore ($5.2 billion). It will enjoy substantial benefits of scale driving significant revenue growth, and capex and opex synergies with an NPV of Rs 20,000 crore ($3 billion).
R-Com and MCB will each hold a 50-per cent stake in the merged entity, with equal representation on the board of directors and all committees.
However, the new entity could lead to some redundancies, too, as the merger will lead to some duplication. There is no clarity on the leadership/management team yet. The company will be managed by an independent professional team under the supervision of the board.
Both RComm and Aircel have decided to cap the debt of the merged entity at Rs 28,000 crore with both Aircel and RCom transferring Rs 14,000 crore each.
Aircel had a debt of Rs 26,000 crore while RCom had Rs 40,000 crore of debt.
RCom's overall debt will reduce by Rs 20,000 crore ($3 billion) or over 40 per cent of its total debt, and Aircel's debt will reduce by Rs 4,000 crore ($600 million), upon completion of the transaction in 2017.
RCom will continue to own and operate its high growth businesses in the domestic and global enterprise space, data centers, optic fibre and related telecom infrastructure, besides owning valuable real estate.
Commenting on the deal, Anil Ambani, chairman, Reliance Group, said, "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."
He added, "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."
The combination will lead to not only healthier financials but a stronger profile in terms of market-share. With an estimated subscriber base of 171 million, the new entity will be among the fourth largest operator. The merged entity will be among top three telcos by revenues in 12 important circles. The new entity will have the second largest spectrum holding amongst all operators, aggregating 448 MHz across the 850, 900, 1800 and 2100 MHz bands, and will enjoy enhanced business continuity through extended validity of spectrum holdings till 2033-35.
This is expected to the first of many others in the industry, as smaller players will find it tough to survive as the dynamics of the industry shift from voice to data. Investing in spectrum for high-speed data requires deep pockets and the fringe players would find it hard to survive without a requisite plan.
Harsh Jagnani of ICRA said, "After Reliance Jio's entry in the telecom sector, it was evident that smaller players would find it challenging and consolidation is along expected lines."
A statement from MCB said, "This deal further reinforces MCB's commitment to India. Since acquiring Aircel in 2006, MCB has invested in excess of Rs 35,000 crore ($5.2 billion) into 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."
