Telekom Malaysia (TM) will pay Rs 150 per share for a less than 15% stake in Idea Celluar, valuing the AV Birla Group company at Rs 40,000 crore or $9.3 billion. Idea will then buy out the Modis’ 40.8% stake in Spice Communications, and TM will have 20% equity in the entity formed after merging Spice and Idea.
“TM will invest around $2.2 billion in Idea and get shares in the merged company,” sources close to the development told ET. Since TM’s stake will increase through a merger, an open offer will not be required. “While TM will buy less than 15% through preferential offer, it will get a little over 5% through merger. The preferential offer for TM was a pre-condition for Spice-Idea merger as TM is keen on a bigger India play. This was the only way Idea could have got Spice, which it has been eyeing for over an year now,” said sources.
With this, TM’s three-year old dream of partnering Idea Cellular will come true. Way back in June 2005, TM, in a consortium with Singapore Technologies Telemedia, wanted to acquire 47.7% stake in Idea Cellular. They wanted to buy out the stake of US telecom giant AT&T — now Cingular Wireless — for about $390 million. However, the Department of Telecom (DoT) raised objections to the deal and TM’s ambitions could not be fulfilled. This time around, TM has been luckier. The two sides are finalising the shareholders’ agreement and an announcement is expected by Friday. “The AV Birla Group (promoters of Idea) has agreed to give TM 20% stake in the company formed after the merger of Idea Cellular and Spice Communications. TM will have the first right of refusal in case the Birlas want to dilute their stake in the merged entity. TM is not interested in management control,” sources said. The price of Rs 150 for each share of Idea was fixed after much deliberations between the two sides as the Birlas wanted a premium of almost 45-50% over the scrip’s current price. The Idea stock closed at Rs 97 on Wednesday, down 2.66% over the previous close. The share swap ratio for merger for Idea and Spice is likely to be 1:8, said sources. Spice shares closed at Rs 57.50 on Wednesday, up 3.79%, amid talks of merger with Idea.
TM currently holds 39.2% stake in Spice Communications, which has over 4.2 million customers in Punjab and Karnataka where Idea does not have operations. Spice has been making losses even 11 years after starting its services. Spice posted a net loss of Rs 36.50 crore for the March 2008 quarter against Rs 14.66 crore in the year-ago period.
The Modis, on the other hand, will not exit the telecom sector after selling the unit to TM. They will continue to make money under a three-year contract with the merged entity. The Idea-Spice combine will sign a deal with the Modis under which the company will use BPO, handsets and value-added services (VAS) being offered by the Modis. Mcorp Global offers VAS through group company, Cellebrum, while Spice Mobile is the group’s handset division, which is offering mobiles at as less as Rs 600.
Spice BPO provides complete back-office solutions, with a special focus on transport, telecom and BFSI segments. A stake in Idea will complement TM's South and South-East Asian investments in Sri Lanka, Bangladesh, Indonesia, Pakistan, Singapore and Thailand. On the other hand, Idea will gain from a strategic investor who will bring in domain expertise.
Strategic investors add value to investments through industry experience and personal ties. This assists companies in marketing, sales and raising additional capital. Idea currently has nearly 25 million subscribers and after the merger, the company will have over 30 million customers, ahead of Tata Teleservices, which has over 26 million users.
interested in management control,” sources said.
Source: Economic Times