Idea bought Spice to consolidate its market share

 by Bharat Ratna

• Idea cellular bought 40.8% stake of Spice Telecom for Rs.2,716 Crores which was fourth largest in Indian Merger & Acquisitions.

• This deal gave Idea Cellular another 44-lakh subscribers of Spice Communications in Punjab and Karnataka circles in addition to owned 2.6-crore subscribers in 11 circles.

• Idea Cellular would get hold of crucial spectrum of licences recently got by Spice for operations in four more circles including Delhi, Tamil Nadu and Andhra Pradesh.

• The ‘Spice’ brand will be phased out over six months in the two circles.

The Birla group company, Idea Cellular 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.

Spice Group said that MCorpglobal Communications Pvt. Ltd. (MCPL), holding 40.8 per cent in Spice Communications, would divest its entire holding to Idea Cellular at a price of Rs. 77.30 a share.

Idea Cellular the fifth-largest mobile operator in terms of subscribers will acquire B K Modi-owned Spice group's 40.8 per cent stake for Rs 2,716 crore to consolidate its position in the country's booming telecom sector.

This acquisition gives Idea two existing circles of Punjab and Karnataka with a subscriber base of 4.4 million. Idea is presently having 11 circles with a customer base of over 26 million.

After this deal, Idea Cellular would get hold of crucial spectrum since Spice Communications had recently been awarded licences for operations in four more circles including Delhi, Tamil Nadu and Andhra Pradesh. The ‘Spice’ brand will be phased out over six months in the two circles.

India, the world's fastest-growing mobile services market and the second-largest market after China, has lured foreign firms like Vodafone and Maxis. Mr Kumar Mangalam Birla, Chairman of Idea Cellular said that the partner of Spice Communications, Telekom Malaysia International (TMI) would now be a significant shareholder in the company.

The deal would open ties with Malaysia's TM International which holds 39.2% of Spice. The two companies have agreed to jointly make a mandatory open offer for an additional 20% stake in Spice.

“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. The stake is just short of the 15% that would trigger a mandatory open offer under Indian laws.

This transaction, valued at 72.94 billion rupees, will help Idea cover a significant part of its expenses related to the Spice acquisition.

As per Telecom Regulatory Authority of India (TRAI), India has 269.30 million wireless users at end-April 2008, a significant up 57 per cent from a year earlier. Idea Cellular currently functions its operations in Andhra Pradesh, Delhi, Gujarat, Haryana, Himachal Pradesh, Madhya Pradesh, Chhattisgarh, Maharashtra, Goa, Rajasthan and UP.

According to TRAI figures, Idea Cellular, has a 12.72 per cent of the Indian GSM telecom market. It added 1.1 million customers in May to take its total subscriber base to 26 million at the month-end. The total GSM subscriber base climbed up to 205 million users by May end.

This acquisition deal would be completed by December 2008 and Idea can consolidate its position in India, one of the world’s fastest growing mobile markets where over 80-lakh subscribers are being added every month.