Thursday, 24 December 2015

Key Aspects of Proposed Merger of Reliance Communications and Aircel

Reliance Communications Ltd (R-Com)entered into talks with Aircel Ltd for a potential merger a month after it announced that it would buy the local unit of Russia’s Sistema JSFC. If the Proposed Merger takes place it will change the present scenario of Indian Telecom Industry and will be an event to analyse.



In this article I will discuss some of the key aspects of the Proposed “Reliance – Aircel” Merger.

R-Communications has entered into a 90-day exclusive period of discussions with Malaysia based Maxis Communications Bhd & Sindya Securities and Investments Pvt. Ltd, the shareholders of Aircel.

The three-way deal, if it materializes, will create a telecom firm with 150 million subscribers that will hold the most spectrum in the country—around 19.3% of the total airwaves available with telecom operators.
Benefits :

i. The talks will consider the potential combination of the Indian wireless business of R-Communications and Aircel to mutually derive the expected substantial benefits of incountry consolidation, including opex (operating expenditure) and capex (capital expenditure) synergies and revenue enhancement.

ii. Post-merger, Reliance Communications will be debt-free, with over Rs 10,000 crore transferred to the separately-listed combined entity. Deal would create an entity with revenue of around Rs 25,000 crore annually and EBITDA (earnings before interest, taxes, depreciation, and amortization) of around Rs 6,000-7,000 crore.

iii. R-Com shareholders will receive free shares in a new combined wireless entity and R-Com’s debt of over Rs.10,000 crore will be transferred to this company.

iv. The potential combination will exclude R-Com’s towers and optical fiber infrastructure, for which R-Com is proceeding with an asset sale, as announced on 4 December 2015.


Approval:

The discussions between R-Com and Aircel are non-binding and any transaction will be subject to due diligence, along with shareholders and other third-party like ROC , SEBI , Competition Commission of India & TRAI.

Prospect of the Merger:

i. The future combination indeed looks very promising as TRAI’s data shows that Aircel had 83,995,783 connections at the end of November 2015 and that 70.11% of its connections were active. The Active connection data represents peak VLR (Visitor Location Register) data for the month.

ii. While Reliance Communications showed that it had 110,385,303 mobile connections at the end of the period with 97.06% of its connections were active.

iii. If the deal goes through, the combined entity of RCom, Sistema, and Aircel will become a formidable player with about 200 million subscribers, heating up the consolidation in the telecommunications sector in India, the world’s second largest market by subscribers.


- CS Rahul Harsh, An Associate Member of The ICSI and A Commerce Graduate from Kolkata, Currently Employed as an Assistant Company Secretary with Aanchal Ispat Limited.
Email : csrahulharsh@gmail.com 

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