Valuation differences sunk RCom-Aircel merger deal?

The real reason for Anil Ambani-owned Reliance Communications (RCom) and Aircel for calling off the merger between them was more to do with the former's "ambitious expectation" on valuation front rather than the cited "legal and regulatory" delays, according to industry insiders.

"It (failure of merger) is more a question of realism on the part of RCom on what the valuation its assets command and as soon as the gap between ambitious expectation and reality closes they (RCom and Aircel) will find a solution to the situation they are in," an industry insider told DNA Money on condition of anonymity.

A few industry insiders, whom DNA Money spoke to, still expect the two could to come together if they managed to somehow resolve their differences.

According to the above executive, there were some "conditions preceding" to the merger that may have been the cause for differences between them.

"There were some conditions preceding to the merger. That may have been the cause. Parties were supposed to bring to the table something, over and above what the two companies had in terms of assets. That was the only unknown part. I am assuming something happened there," he said.

Experts believe the failure of the two unviable telecom firms to combine their business would not impact the ongoing consolidation taking place in the sector in a major way.

They believe RCom and Aircel would not be able to survive on their own and would have to address the viability issue by selling out or shutting down their operations.

"I don't actually see any other option for them but to merge or shut down, honestly. Given that shutdown option is not acceptable to their bankers as they will be forced to write off their non-performing assets (NPA), merger and sell-out are the only way out for them," said a telecom analyst, who did not want to be named.

RCom, which has a debt of over Rs 46,000 crore on its books, was expected to bring down its loans to Rs20,000 crore while Aircel would have cut its borrowings to Rs 4,000 crore through the merger deal. The two had signed a binding agreement in September last year for combining their mobile business.

The Anil Ambani-owned wireless telecom firm is expecting its merger with telecom company Sistema Shyam Teleservices Ltd (SSTL) to go through this month.

An analyst, who spoke off-the-record, warned that the Vodafone- Idea merger plans could also go off the track unless their combined entity was shrunk or massive capital was infused in it.

"Even Vodafone- Idea combine is not viable in its present footprint. My view has been that the combine either has to shrink or has to have a massive capital infusion or both," he said.

According to him, the only way is out for RCom was to sell its business for whatever it was worth to Aircel without any precondition. Some of the experts expect RCom's tower sale deal with Canada's Brookfield to be affected by the failed merger deal.

Meanwhile, in a BSE filing, RCom announced the expansion of its board and promotion of Punit Garg as executive director and Manikantan V as director. The two were elevated from their current positions of former president of telecom business and CFO respectively. Their appointment as director is for three years.

Additionally, Suresh Rangachar, who currently heads the fibre and tower business as Director of Reliance Infratel Ltd (RITL), a subsidiary, was elevated as executive director of RITL and Gurdeep Singh, co-CEO and CEO of the mobility business, as executive director of Reliance Telecom Ltd, a subsidiary.