It's a good IDEA to add some Spice

In one of the biggest Indian telecom deal, Idea Cellular Ltd, the fifth largest mobile operator in terms of subscriber base in India on Wednesday has announced to purchase 40.8% stake of Spice Communication Ltd at Rs. 2,720 crore including sum of Rs. 544-crore as a non-compete fee. The remaining, Rs. 2,176-crore has been scheduled to give Spice for its 28.14-crore equities at a price of Rs.77.30 per equity share, as per sources.

After acquiring Spice stake, Idea would now be able to add 4.4 million subscribers of Spice Communication disbursed in Punjab and Karnataka into its present 25-million subscriber base and would be only 5-million subscribers behind Bharat Sanchar Nigam Limited, the fourth mobile player in India. The deal is expected to complete by the end of December, 2008.

In this mega deal, AV Birla Group’s (which owned Idea Cellular company) Chairman Kumar Mangalam Birla claimed, ‘Idea will now become a debt free company because of the net gain it from the deal’.

Describing the reason behind it Kumar Mangalam said, “The entry of the Malaysian telecom giant in Idea Cellular will help the company turn debt free. The preferential allotment to Telekom Malaysia International (TMI) will result in an inflow of about Rs. 7,200 crore, and thus resulting in a cash accrual of Rs. 4,500 crore which will help the company become debt free.”

It was in rumours since last few months that Malaysian telecom giant TMI, which has 44-million customers in 10 countries, is interested in this deal and finally this has been signed.

Idea along with TMI will launch a mandatory open offer of 20% additional stake of Spice to Spice Shareholders at the same price of Rs.77.30 per share.

After merging Spice in itself, Idea will offer a 14.99% preferential stake to TMI at Rs. 156.96 per share, transforming into Rs 7,294 crore, which would be one of the largest infusions of Foreign Direct Investment into India. After making the payment to Modis, who owned Spice’s largest share, Idea will get Rs.4,500-crore.

As per merger formula, Spice shareholder will get 49 Idea shares in the exchange of 100 shares of Spice. The Spice share will be delisted from the Indian stock market soon.

Idea will get the crucial spectrum of Spice, which it holds at present and also got the license for expanding its network. Spice Communication has recently acquired licensed for operating in four new circles including Delhi, Tamil Nadu and Andhra Pradesh.