Idea Cellular will buy 40.8% in Spice Communications from its current owners, the Spice Group, at a price of Rs77.30 per share totalling Rs21.8 billion. Idea will also pay Rs5.44 billion to the Spice Group as a non-compete fee. On a per share basis, including the non-compete fee, the controlling shareholders of Spice are realising Rs96.63 per share. In compliance with change of control guidelines in India, Idea and Telekom Malaysia International will make an open offer for an additional 20% stake in Spice at the same price per share of Rs77.30, which they will pay the Spice Group against their shares. If all shareholders tender, the outlay for the open offer will be another Rs10.7 billion.
Subsequently Spice will be merged into Idea at a swap ratio of 49 Idea shares for every 100 Spice shares. Telekom Malaysia currently owns 39.2% of Spice, which it acquired in May 2006 at a cost of $178.8 million. Idea has agreed to make a preferential allotment to Telekom Malaysia of 464.73 million equity shares at a price of Rs156.96 per share representing 14.99% of IdeaÆs equity share capital pre-merger. Telekom Malaysia will finally have a shareholding of up to 19% in Idea, depending on how many minority shareholders tender in the open offer. The ownership will be routed through TMI Mauritius, a wholly owned subsidiary of Telekom Malaysia, said the Malaysian firm in a Bursa Malaysia filing.
Telekom Malaysia said the price of Rs156.96 per share is based on IdeaÆs five-day volume weighted average market price (VWAP) up to and including 24 June of Rs.105.66 and IdeaÆs three-month VWAP of Rs.105.91. The agreed price is a 48% premium to the VWAPs. It is also based on IdeaÆs Ebitda of Rs.22.7 billion for the most recent financial year ended March 31 2008 and the Malaysian firmÆs assessment of the historical and future performance of Idea. Telekom Malaysia will have the right to nominate one director to the board of Idea.
ôThis is clearly a transformational deal for Idea which will help realise significant future synergies,ö says Saurabh Agrawal, managing director, global markets and investment banking at DSP Merrill Lynch. ôThe deal positions Idea as a national telecom player with a zero-debt balance sheet which is an asset for a telecommunications company.ö
The deal has been structured to meet various objectives. The Spice owners realise a total of Rs27.2 billion for their 40.8% stake in the telecommunications company. However, by making part of the payment to Spice as a non-compete, Idea pays minority shareholders only the Rs77.30 per share it is paying Spice for its shares. Minority shareholders could opt not to tender and will then be issued shares in Idea.
Post-merger, Telekom Malaysia becomes the second largest shareholder in Idea. The Rs73 billion Telekom Malaysia invests in Idea enriches the companyÆs coffers, thus providing money for capital expenditure and for new services in new areas.
Idea has licenses to operate in all 22 service areas in India with commercial operations in 11 service areas and a customer base of over 26 million. It is part of the $28 billion Aditya Birla group. Spice Communications was started by Indian businessman BK Modi more than 10 years ago and currently offers mobile telecommunication services in the Indian states of Punjab and Karnataka states of India and as of April 30 Spice had 4.4 million subscribers.
For Idea the deal provides an entry into the wireless markets in these two states, which account for 11% of IndiaÆs total wireless subscribers. On a consolidated all-India basis, Idea increases its market share from 9.5% currently to 11.1% post-merger.
Telekom Malaysia, which has a presence in 10 countries and services 44 million subscribers, becomes a significant shareholder in Idea, one of IndiaÆs fastest-growing telecommunications companies. Telekom Malaysia has an established presence in IndiaÆs neighbouring countries, Sri Lanka and Bangladesh, which Idea can leverage and Idea will also benefit from Telekom MalaysiaÆs experience of operating in 3G markets.
The deal, which has been brewing for some time but was reportedly held up due to valuation differences between the buyer and seller, was done on a negotiated basis between the parties. DSP Merrill Lynch was exclusive financial adviser to Idea and will also be assisting Idea to arrange financing. Telekom Malaysia was advised by Lazard, with advice in Malaysia provided by CIMB. The Spice group was advised by Enam and Lehman.
Spice shares gained 32% on IndiaÆs National Stock Exchange to close at Rs72. Idea gained 2.8% to close at Rs102. The NSE index, the Nifty, closed at 4,252 points, up 1.5%.
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