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RCom-Aircel merger a strong challenger to Idea Cellular

Anil Ambani led Reliance Communications (RCom) signed definitive agreements with Maxis Communications Berhad (MCB) for the merger of wireless businesses of Aircel Limited with itself, making it the largest-ever consolidation in the Indian telecom sector.
The RCOM-Aircel combination will create a strong operator clearly ranked amongst India’s top 4 telcos by customer base and revenues, also ranking amongst the top 3 operators by revenues in 12 important circles, said a company statement adding that the merged company will have the second-largest spectrum holding amongst all operators, aggregating 448 MHz across the 850, 900, 1800 and 2100 MHz bands.
“Together with our partners, MCB, we are delighted to have taken the lead in consolidation of the Indian telecom sector, first, with RCOM’s acquisition of the wireless business of SSTL (Sistema / MTS), and now, with the combination of our business with Aircel Ltd. in a 50:50 Joint Venture with MCB,” Anil D. Ambani, chairman, Reliance Group.
Mr. Ambani expects this combination to create substantial long term value for shareholders of both, RCOM and MCB, given the benefits of the wide-ranging spectrum portfolio and significant revenue and cost synergies.
According to MCB, this deal further reinforces MCB’s commitment to India as MCB has invested in excess of Rs 35,000 crore ($ 5.2 billion) into Aircel, making this one of the largest foreign investments in the Indian telecom sector.
“This since acquiring Aircel in 2006, the magnitude of this investment, and the further equity commitment in support of this deal, are underpinned by MCB’s belief in the long term growth potential of both India and the Indian telecom sector,” said a MCB statement.
The merged entity will be one of India’s largest private sector companies, with an asset base of over Rs. 65,000 crore ($9.7 billion) and net worth of Rs. 35,000 crore ($5.2 billion).
The combined entity will enjoy substantial benefits of scale driving significant revenue growth, and capex and opex synergies with an NPV of Rs. 20,000 crore ($3 billion).
RCom and MCB will each hold a 50% stake in the merged entity, with equal representation on the Board of Directors and all Committees. The Company will be managed by an independent professional team under the supervision of the Board.
Rcom’s overall debt will reduce by Rs 20,000 crore ($3 billion) or over 40% of its total debt, and Aircel’s debt will reduce by Rs. 4,000 crore ($600 million), upon completion of the transaction in 2017.
On consummation of the merger, RCom and MCB are committed to additional equity infusion into merged company to further strengthen the balance sheet, fund future growth plans, and enhance financial flexibility, said the company statement adding that both parties are already in talks with leading international investors in this regard.
“The merged entity leader in 12 cicles will be a strong challenger to Kumar Mangalam Birla led Idea Cellular, which is getting squeezed from both ends. With the launch of Reliance Jio and this merger,” said a leading telcom analyst.
Investment advisor S P Tulsian believes that on a consolidated basis RCom’s debt is likely to remain the same. “Both Rcom and Aircel are putting Rs14,000 crore each of their debts in the new entity and since they both own 50% of it, Rs 14,000 crore worth of debt will be reflected in the book of RCom on a consolidated basis,” Tulsian told The Hindu.
RCom shares closed up 2.72% at Rs 51.05 in a flat Mumbai market on Wednesday, valuing the company at Rs 12,706 crore.

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