The buyout of Spice Telecom by Idea Cellular is the fourth largest merger and acquisition deal involving an Indian entity and may be a pre-cursor to more such transactions.
NEW DELHI: The buyout of Spice Telecom by Idea Cellular is the fourth largest merger and acquisition deal involving an Indian entity and may be a pre-cursor to more such transactions in the telecom space.
The country's fifth-largest mobile operator in terms of subscribers, Idea Cellular would acquire B K Modi-owned Spice group's 40.8 per cent stake in Spice Communications for Rs 2,716 crore.
"The talks are on between Anil Ambani-led Reliance Communications and South African telecom major MTN and the significant premium in Idea-Spice transaction proves the inherent value that Indian telecom space offers for such deals," DSP Merrill Lynch Managing Director Saurabh Agarwal said.
Idea would acquire the stake at Rs 77.30 a share representing a premium of 42 per cent over Tuesday's closing price (Rs 54.35). Despite high volatility on the bourses on Wednesday, the scrip gained more than 35 per cent on the Bombay Stock Exchange.
Shares of the company settled at Rs 72.35, up 33.12 per cent (a rise of Rs 18 per share).
The big ticket deals involving Indian companies include Tata's takeover of Anglo-Dutch steel maker Corus, UK mobile major Vodafone stake acquisition of Hutchison Essar and Aditya Birla Group firm Hindalco's buyout of Novelis.
While Tata-Corus deal was worth 12.1 billion dollars, Vodafone's buyout of Hutchison Essar stake was valued at 10.9 billion dollars. Hindalco acquired Novelis for nearly six billion dollars.
According to Agarwal, the Idea transaction would usher in a transformation in the Indian telecom sector and also make the company truly "national".
Idea would have an additional cash flow to the tune of Rs 4,500 crore and has acquired a nearly zero debt company, he added. Following the deal, Idea's market share would catapult to 11.1 per cent and more importantly would get the crucial spectrum on 900 Mhz band.
The Birla group company today said it would merge Spice with itself through a share swap where Spice shareholders would get 49 Idea shares for every 100 Spice shares held. It will also pay an additional Rs 544-crore as non compete fee.
The partner of Spice Communications Telekom Malaysia would now be a significant shareholder in the company, Idea cellular Chairman Kumar Mangalam Birla said.
Idea along with TMI would now make an open offer for additional 20 per cent stake in Spice at the same price in which Idea has bought B K Modi's Spice group's share.
It would also make a preferential allotment to TMI for 15 per cent stake in the merged entity. "Idea will make a preferential allotment to TMI of 464.73 million equity shares at a price of Rs 156.96 a share representing 14.99 per cent of Idea's equity capital post allotment," an Idea statement said.
In Spice Communications, TMI held 49 per cent which translated into a five per cent corresponding stake in the merged entity. When preferential offer would be complete, the stake of TMI in the merged entity would be 20 per cent.
Pointing out that following the Idea-Spice deal more such inward and outward transactions could materialise in the coming months, Agarwal said that Merrill Lynch expects to be part of such deals in the future.
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