Mobile services

Bharti Infratel, Indus Towers Merge to Form $14.6B Giant

Bharti Infratel and Indus Towers are merging to create the world's second-largest towers company, with more than a third of the country's total number of towers.

The deal brings together the towers subsidiary of Bharti Airtel Ltd. (Mumbai: BHARTIARTL) with a towers joint venture that Airtel operates with merging competitors Vodafone India and Idea Cellular Ltd.

With 163,000 towers, the new-look towers business will be the world's second biggest and account for 36% of the 450,000 towers currently in India. But that total will probably double in the next two and a half years as telcos expand their footprints. (See Indian Telcos to Ramp Up Network Investment in Next 2 Years.)

The combined $14.6 billion company will be called Indus Towers Limited and be listed on the Indian Stock Exchange. Bharti Airtel and Vodafone will jointly control and manage the combined entity. Subject to the approval of various government agencies, the transaction is expected to close by March 2019.

The deal comes as Vodafone India and Idea Cellular work on completing their separate merger, which looks set to create the country's biggest mobile operator. Announced last year, in response to competition from aggressive new entrant Reliance Jio, that deal excluded Vodafone's tower assets to ensure the merging operators had similar valuations.

It would, however, have left Vodafone-Idea with a much bigger stake than Airtel in Indus Towers. By merging Infratel with Indus Towers, Airtel avoids being left with only a small stake in the joint towers venture. According to the terms of the partnership between the three operators, each must now agree to any other operator's decision to sell out of the business.

That business will have a footprint that stretches across all of India's 22 "circles," or service areas. "Indus Towers currently operates in 15 telecom service areas ("circles") and Bharti Infratel's operations are focused on the remaining seven circles," says a press release from the companies.

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The transaction values Indus Towers at about 715 billion Indian rupees ($10.7 billion). Currently, Airtel and Vodafone each own a 42% stake in that business, with Idea holding 11.15%. The remaining 4.85% is owned by US private equity firm Providence, which has the option of exchanging a 3.85% stake for cash or shares and the balance for shares in the combined company.

Similarly, Idea can sell its 11.15% stake for INR65 billion ($970 million) in cash or receive 207.9 million new shares in the combined entity. "All the proceeds from the sale of the 11.15% stake will be for the benefit of the entity resulting from the merger of Vodafone India and Idea Group," explains the press release.

Vodafone, meanwhile, will be issued with 783.1 million new shares in exchange for its 42% stake in Indus Towers. The total Vodafone shareholding is valued at INR284 billion ($4.3 billion).

Should both Providence and Idea sell their stakes, Airtel's stake will be diluted from 53.5% to 37.2% in the merged entity.

Gagandeep Kaur, contributing editor, special to Light Reading

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