The Hindu Business Line : Idea Cellular snaps up Spice

Mumbai, June 25 In a major consolidation in the telecom sector, Idea Cellular, part of the Aditya Birla group, will be acquiring 40.8 per cent stake in a smaller rival telecom company, Spice Communications, for about Rs 2,176 crore at a price of Rs 77.30 per share. In addition to this, Idea will also pay Rs 544 crore to the Spice group as non-compete fee, taking the total deal size to about Rs 2,700 crore.

Subsequently, Idea will make a preferential allotment of 464 million shares to Malayasian telecom company, TM International (TMI), which at present holds about 39 per cent stake in Spice, at a price of Rs 156.96 per share. This represents 14.99 per cent of Idea’s equity capital post-allotment.

In other words, while Idea’s cash outgo for the Spice stake is Rs 2,700 crore, its cash inflow is about Rs 7,200 crore through the preferential allotment. Thus the deal will result in Idea getting a cash accrual of about Rs 4,500 crore, apart from increasing its share in the wireless telecom market, said a senior Idea Cellular official.

Open offer

Idea and TMI will then together make an open offer for an additional 20 per cent stake in Spice at a price of Rs 77.30 per share. After the open offer, the Birlas will own about 48 per cent stake in Idea, while TMI will hold about 18 to 20 per cent.

The boards of Idea and Spice have also approved the merger , with the swap ratio being fixed at 49 shares of Idea for every 100 shares of Spice held. The entire process is expected to be wrapped up within six months, which will make Idea a pan-India telecom service provider.

Market penetration

Mr Kumar Mangalam Birla, Idea Cellular chairman, told reporters here on Wednesday that the acquisition will pave the way for Idea’s entry into the fast growing wireless markets of Punjab and Karnataka, which account for 11 per cent of India’s total wireless subscribers. Idea will consolidate its position with market share going up from the present 9.5 per cent to 11.1 per cent. The buy will also help Idea’s operations in the 900 MHz GSM spectrum band to increase from the current seven service areas to nine areas, resulting in lower operating and capital expenditure.

A senior official of Idea said the deal would help the company become totally debt free, with the cash accrual of about Rs 4,500 crore after the preferential allotment to TMI.

TMI, which has over 44 million subscribers spread across 10 countries, is interested to invest in Idea. Idea Cellular is currently rolling out operations in Mumbai, Bihar, Orissa and Tamil Nadu service areas. It plans to roll out in the remaining service areas of Kolkata, West Bengal, Assam, North East and J & K after receiving spectrum.

Mr B.K. Modi, Chairman of Spice Group, has exited Spice Communications in the wake of this transaction.

This divestment will enable Spice to redeploy resources and strengthen the group’s mobile ecosystem businesses led by Mobile VAS, mobile devices, telecom retail and customer support, Mr Modi said.