What a brilliant idea!

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June 26 – Ending months of speculation, concluding in one of India's largest telecom deals, A V Birla controlled Idea Cellular acquired a 40.8% in Spice Communications Ltd for Rs 2,720 crore (US$636 million).

The mobile-phone operator will add Spice's 4.5 million subscribers to its current base of 26.14 million users, taking it close to the No. 4 — state-run Bharat Sanchar Nigam Ltd. — in India's telecom market.

The deal consists of four related, but distinct transactions. To begin with, Idea will acquire the Modis’ (promoter's) 40.8% stake in Spice. Subsequently, Idea will launch the mandatory 20% open offer for Spice shareholders, jointly with Telekom Malaysia International (TMI), who also has a stake in the company.

Idea will then merge Spice with itself and offer a 14.99% stake to TMI through a preferential allotment. Idea will earn Rs 7,294 crore ($1.7 billion, assuming an exchange rate of Rs 43) by selling this stake to TMI. This would make it one of the largest infusions of FDI into India, the Economic Times reported.

Idea Cellular is buying 281.49 million shares from MCorpGlobal Communications Pvt. Ltd., the investment arm of the Spice Group, for 77.30 rupees per share, the companies said in separate statements Wednesday.

The purchase price was at a 6.8% premium to Spice's Wednesday closing price of 72.35 rupees on the Bombay Stock Exchange.

The deal will help Idea consolidate its position as the fifth-largest telecom company in India by number of users. The company's shares rose 2.9% to 102.05 rupees each.

The boards of both the companies have approved the merger of Spice Communications with Idea. Under the agreed-upon merger ratio, an investor holding 100 shares in Spice will get 49 Idea shares.

The merger and Idea's subsequent relisting after the Spice merger will be completed in the next six months, Kumar Mangalam Birla, Idea Cellular chairman, told reporters at a news conference.

As part of the deal, Idea said it will issue 464.73 million preferred shares, or 14.99%, to Malaysian mobile operator TM International Bhd. at 156.96 rupees each.

TMI, which holds 39.2% in Spice, will spend 5.5 billion ringgit ($1.69 billion) for the stake in Idea. The Malaysian operator will end up with a 19% stake in the merged entity, TMI said. It has an option to raise this stake to 20.1%, it said.

"Idea will have about 46%-47% in the merged entity, with 34%-35% with others," said Saurabh Agrawal, managing director, DSP Merrill Lynch, who was part of the team that advised Idea on the deal told the Wall Street Journal.

Idea will have "a net inflow of about 45 billion rupees through the whole deal with a stake dilution of about 20%. These funds will come in handy for capex while expanding its operations," Mr. Agrawal added.