The much-anticipated $6-billion merger between Anil Ambani-led Reliance Communications BSE 2.72 % (RCom) and Aircel is expected to be announced this week, paving the way for what would be the first in-market telecom merger of a national scale in the country, said officials in the know.
The matter is likely to come up for discussions at the RCom board meeting scheduled for Wednesday to consider and approve unaudited financial results for the quarter ended June.
As per the terms, RCom will hive off its wireless business into a separate arm, a special purpose vehicle, in form of a slump sale, leaving behind the tower and overseas arms. The arm, in turn, will get merged into the mobile business of Maxis-owned Aircel. Partners will have 50:50 ownership of this new entity that will remain unlisted in initial years and is likely to operate under a new brand name.
Both have agreed to bring in $580 million each to create a Rs 7,600-crore equity pool for the new entity to invest further in capex and grow business, said the sources mentioned above. Both will also transfer Rs 14,000 crore of their debt into it.
The merger comes in the backdrop of Reliance Jio Infocomm's launch, the country's only 4G technology network. Reliance Communications had started upgrading data customers to 4G on the back of Jio's network some months ago.
In January, RCom had paid Rs 5,384 crore to the exchequer to liberalize airwaves in the 850MHz band, leaving its 1800MHz band which were allocated rather than bought in auction. Aircel has more airwaves to be liberalised, said one of the persons. The additional cash infused may be needed for that, he said.
When contacted, RCom spokesperson declined to comment. Aircel did not revert on mails and messages seeking comments.
As per industry estimates, a 12% revenue market share could translate into an enterprise valuation of $6 billion for the merged company. However, analysts expect there is scope for it to go up by 40-50% in the next few years, once the operational synergies get fully optimised.
The merged entity is expecting approximately Rs 2,500 crore in earnings before interest tax depreciation and amortisation (EBITDA) after cost savings through synergies between the two operations.
Recast loans after the merger will bear a term of 20 years with a twoyear moratorium, said one of the persons quoted earlier. Loan instalments will rise progressively and can be serviced by the company as long as its EBITDA rises to Rs 4,000-5,000 crore in four years.
Consultants Booz Allen and AT Kearney are helping both parties in the exercise. Investment bank Goldman Sachs and Standard Chartered Bank are the financial advisors to the transaction. Lawyers include Khaitan & Co and Kirkland & Ellis & Slaughter & May.
The joint entity is expected to pull in 120 million active subscribers, though company officials say the number will actually be higher — at 150-160 million — along with a revenue market share of 6% each.
IIFL analysts estimate RCom-Aircel-Sistema will have 20% of spectrum market share and be in the top 3 by revenue market share in 13 out of the 22 circles. Additionally, it will plug GSM coverage gaps in three of five circles where RCom failed to renew 900MHz spectrum.
The merger should help the two improve revenue market share, deleverage balance sheets, optimise spectrum usage and streamline opex and capex synergies.
For the past three years, the two have had infrastructure-sharing agreements. They can also leverage Jio's 4G network, experts said. RCom and Jio are in spectrum trading and sharing alliances.
Parallely, the company is also in discussions with Canadian asset manager Brookfield to claim a majority stake in the tower arm Reliance Infratel for an enterprise valuation of $2.5-3 billion. The two transactions (wireless and tower) will help RCom cut its debt from Rs 42,364 crore to Rs 10,000 crore.
Courtesy : Ecnomictimes.Indiatimes.com
The matter is likely to come up for discussions at the RCom board meeting scheduled for Wednesday to consider and approve unaudited financial results for the quarter ended June.
As per the terms, RCom will hive off its wireless business into a separate arm, a special purpose vehicle, in form of a slump sale, leaving behind the tower and overseas arms. The arm, in turn, will get merged into the mobile business of Maxis-owned Aircel. Partners will have 50:50 ownership of this new entity that will remain unlisted in initial years and is likely to operate under a new brand name.
Both have agreed to bring in $580 million each to create a Rs 7,600-crore equity pool for the new entity to invest further in capex and grow business, said the sources mentioned above. Both will also transfer Rs 14,000 crore of their debt into it.
The merger comes in the backdrop of Reliance Jio Infocomm's launch, the country's only 4G technology network. Reliance Communications had started upgrading data customers to 4G on the back of Jio's network some months ago.
In January, RCom had paid Rs 5,384 crore to the exchequer to liberalize airwaves in the 850MHz band, leaving its 1800MHz band which were allocated rather than bought in auction. Aircel has more airwaves to be liberalised, said one of the persons. The additional cash infused may be needed for that, he said.
When contacted, RCom spokesperson declined to comment. Aircel did not revert on mails and messages seeking comments.
As per industry estimates, a 12% revenue market share could translate into an enterprise valuation of $6 billion for the merged company. However, analysts expect there is scope for it to go up by 40-50% in the next few years, once the operational synergies get fully optimised.
The merged entity is expecting approximately Rs 2,500 crore in earnings before interest tax depreciation and amortisation (EBITDA) after cost savings through synergies between the two operations.
Recast loans after the merger will bear a term of 20 years with a twoyear moratorium, said one of the persons quoted earlier. Loan instalments will rise progressively and can be serviced by the company as long as its EBITDA rises to Rs 4,000-5,000 crore in four years.
Consultants Booz Allen and AT Kearney are helping both parties in the exercise. Investment bank Goldman Sachs and Standard Chartered Bank are the financial advisors to the transaction. Lawyers include Khaitan & Co and Kirkland & Ellis & Slaughter & May.
The joint entity is expected to pull in 120 million active subscribers, though company officials say the number will actually be higher — at 150-160 million — along with a revenue market share of 6% each.
IIFL analysts estimate RCom-Aircel-Sistema will have 20% of spectrum market share and be in the top 3 by revenue market share in 13 out of the 22 circles. Additionally, it will plug GSM coverage gaps in three of five circles where RCom failed to renew 900MHz spectrum.
The merger should help the two improve revenue market share, deleverage balance sheets, optimise spectrum usage and streamline opex and capex synergies.
For the past three years, the two have had infrastructure-sharing agreements. They can also leverage Jio's 4G network, experts said. RCom and Jio are in spectrum trading and sharing alliances.
Parallely, the company is also in discussions with Canadian asset manager Brookfield to claim a majority stake in the tower arm Reliance Infratel for an enterprise valuation of $2.5-3 billion. The two transactions (wireless and tower) will help RCom cut its debt from Rs 42,364 crore to Rs 10,000 crore.
Courtesy : Ecnomictimes.Indiatimes.com
