"Idea to buy Spice for Rs 2,200 cr"

Joji Thomas Philip & Chaitali Chakravarty
NEW DELHI


IDEA Cellular is set to buy out BK Modi’s 40.8% stake in Spice Communications for around Rs 2,200 crore at Rs 77.50 per share. A top source confirmed that the two companies have finalised the deal between Rs 77 and Rs 78 per share, a premium of 45% to Monday’s closing share price of Rs 53.2.

The deal pegs the valuation of Spice Communications at Rs 5,347 crore. The company is likely to make an announcement in the next few days.

After buying out the Modis, Idea Cellular will make the mandatory open offer for 20% stake in Spice that is currently held by the public. The two companies will be subsequently merged, said a source. Telekom Malaysia, which currently has a 39.3% stake in Spice Communications, will be given a proportional stake in the combined Idea-Spice entity, sources said.

ET had reported about a possible merger between Idea Cellular and Spice Communications in its edition dated June 4.

Industry analysts and market watchers say that Idea is paying a ‘considerable’ premium considering that Spice’s shares closed at Rs 53.2 on Monday, up 2.4%. At Monday’s closing price, the Modis stake is valued at Rs 1,497.5 crore, making the entire company worth Rs 3,670.3 crore.

Idea gains considerable advantage with the acquisition of Spice since the latter holds spectrum in the highly efficient 900 Mhz, which can accommodate a large number of subscribers. If Idea were to launch operations independently in Karnataka and Punjab (the two circles where Spice currently operates), it will only get radio frequencies in the 1800 MHz band, as the 900 MHz has been completely exhausted.

Deal will take Idea ahead of Tata Tele
WHILE it could not be independently confirmed, it is learnt that a deal was thrashed out merchant bankers representing the three principal players — Lazard and Company, which is advising Telekom Malaysia, Merrill Lynch on behalf of the Aditya Birla Group (Idea’s parent company), and KPMG, who is advising the Modis.

The deal will result in Idea Cellular moving ahead of Tata Teleservices to be the country’s fifth largest mobile entity. A Idea-Spice merger will have operations in 13 of the 22 telecom circles in the country with a subscriber base of about 28.5 million subscribers. At present, Spice Communications has operations in two circles — Punjab and Karnataka — with about four million subscribers, while Idea Cellular has services in 11 circles has a little over 24 million customers.

The Modis have been looking for an quick exit after telecom tribunal last week denied to grant relief to Spice’s plea that it be given a pan-India license. Besides, the company’s poor economic condition had also led to a scenario where the Modis were unable to fund the company’s expansion plans.