In buying out Spice Communications, Idea Cellular is exploring a strategy that would help its promoters retain control of a majority stake in the merged entity, and yet gain from a cash infusion of Rs 3,500 crore from the transaction.
In a three-way transaction, Kumar Mangalam Birla’s Idea Cellular will sell 46.47 crore shares for Rs 7,300 crore to Telekom Malaysia, which holds a substantive stake in Spice and has a first right of refusal for any promoters’ stake in that company.
From the money it gets from Telekom Malaysia, Idea Cellular will pay Rs 2,720 crore to acquire B.K Modi and his family’s holding of 40.8 percent in Spice. Another Rs 1,050 crore will be kept aside for an open offer. In the end, Idea Cellular would still be left with Rs 3,500 crore in cash. Once the acquisition goes through, Spice will first become a 60 per cent-owned subsidiary of Idea Cellular, with which it would be merged at a later date, said a banker involved in structuring the deal.
The merger strategy under consideration is that Idea’s holding in Spice will be transferred to a trust, which, in turn, will be owned by Idea only, said the banker, who spoke on condition of anonymity. The remaining 40 per cent stake in Spice held by Telekom Malaysia would be swapped against 13.25 crore fresh shares of Idea Cellular after the merger that will leave the Birla company with an expanded capital base, he said.
After all that, the promoters will effectively control 51 per cent in the merged entity. They will directly hold 45 per cent stake, down from the current 56.7 per cent, and control another 6 per cent that will be held by the trust.
The strategy, especially the creation of the trust, is somewhat similar to the merger of Reliance Petroleum Ltd with Reliance Industries in 2002.
Officials at Idea Cellular, when contacted, declined to comment.
Post merger, Telekom Malaysia will hold 17.4 per cent in Idea Cellular, apparently in line with its push to get bigger foothold in the Indian mobile telephony market.