India's IDEA Buys Spice for $750M

Indian mobile operator Idea Cellular Ltd. has finally secured a commitment from its on-again, off again M&A interest Spice Telecom . (See Idea, Spice to Merge.)

IDEA announced Wednesday it's agreed to acquire Spice chairman Bhupendra Kumar Modi's 40.8 percent stake in the regional operator for 32.4 billion Indian Rupees (US$754.14 million), or INR77.30 ($1.80) per share –- a 42 percent premium.

The two operators will be merged, with shareholders receiving 49 shares in IDEA Cellular for every 100 shares they hold in Spice Telecom.

IDEA will then offer TM International Bhd. (Telekom Malaysia Bhd. 's international arm), which holds a 39.2 percent stake in Spice, a 14.99 percent stake in the merged company for INR156.96 ($3.65) per share. IDEA and TMI will make an open offer to acquire the remaining 20 percent of Spice that is publicly traded, subsequently delisting the carrier and incorporating it into IDEA's operations.

BK Modi and Spice's managing director Dilip Modi have resigned from the operator's board of directors, according to a note to the stock exchange. The Spice Group will receive an INR5.44 billion ($126.62 million) non-compete payment from IDEA and turn its attention to value-added and retail mobile services through its Cellebrum Technologies Ltd. and Spice Mobiles subsidiaries.

Spice’s share price rocketed 33.15 percent on the Bombay Stock Exchange to close at INR72.35, INR18 higher than Tuesday’s closing price of INR54.35. IDEA Cellular closed INR2.90 (2.92%) higher at INR102.05.

IDEA Cellular has been pursuing a merger with smaller operator Spice for some time, and the carriers came close to an agreement last year before Spice’s IPO. (See Spice Mulls Hot Merger IDEA, M&A Speculation Swirls Spice, Telkom, and Spice Makes Tasty Market Debut.)

Acquiring Spice gives IDEA Cellular operations in India’s Punjab and Karnataka circles, or service areas, where IDEA received licenses in January and is yet to roll out networks. The race is on for carriers to extend their network coverage as rapidly as possible before five new operators enter India’s mobile market later this year and ratchet up competition.

Spice has received licenses for four other regions, while IDEA has licenses to extend its network from 11 to all 23 circles. IDEA expects to launch services in the Tamil Nadu, Bihar, and Mumbai regions by August. (See A Guide to India's Telecom Operators.)

Spectrum is a hot commodity among India’s telcos as they continue to wait in line for the government to dole out frequency in some regions to go along with their new licenses. Spice’s spectrum in Punjab and Karnataka not only allows IDEA to skip the wait; it’s in the 900MHz band, which is considered more efficient than the 1800MHz band because it can support a larger number of subscribers.

India’s sixth-largest mobile operator, IDEA had 26.14 million subscribers at the end of May, up 1.1 million from April, according to data from industry group COAI. Spice will give IDEA an additional 4.5 million customers, overtaking fifth-ranked Tata Teleservices Ltd. with its 26.23 million subscribers and bringing it closer to Bharat Sanchar Nigam Ltd. (BSNL) ’s 37 million. (See India Adds 8.6M Mobile Subs in May.)

Selling the stake to TMI will help IDEA become debt-free and better able to finance its expansion. Spice, which reported a net loss of INR365.06 million ($8.5 million) for the quarter ended March 31, has been hard pressed to finance its own expansion and was denied licenses to become a nationwide operator due to its failure to meet financial requirements. IDEA, which reported a quarterly net income of INR2.78 billion ($65 million), is better positioned to absorb and bring down Spice’s operational costs.

— Nicole Willing, Reporter, Light Reading

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