"STAGE SET FOR ANOTHER BIG M and A PLAY"

IDEA SET TO BUY OUT SPICE FROM MODIS

Adding more spice to an already-hot Indian telecom story, the merger will create a cellular behemoth with 28.5 million users

Rashmi Pratap MUMBAI


THE AVB Group-owned Idea Cellular is buying out the Modis from Spice Communications, taking complete control of the mobile company. The two will then be merged. Telekom Malaysia, which owns a shade less than 40% in Spice, will hold a stake in the combined entity.

ET was the first to report about this development on Wednesday.
Spice shares closed at Rs 51.95 on Friday, down 3% from their previous close. At this price, the market capitalisation of Spice is around $850 million. The value of the deal could not be ascertained. The Modis are likely to exit the company completely. Idea will make an open offer for the mandatory 20% after buying them out.

Telekom Malaysia was also interested in increasing its stake in the company. It wanted to buy out the Modis and later explore the option of merging with Idea.

The Idea board met in Mumbai on Friday. However, the details of the meeting could not be ascertained. Idea MD Sanjeev Aga and BK Modi of Spice refused to comment.

Spice, which operates in the Punjab and Karnataka circles, has been an acquisition target for quite sometime now for various reasons. One, it has remained restricted to the two circles even 11 years after rolling out operations. Two, it has spectrum in the 900 MHz band, which can accommodate a larger number of subscribers than the 1,800 MHz band used by other GSM operators. Spice has nearly 4.4 million subscribers in the two circles.

The merged entity will become the fifthlargest telco in terms of mobile subscribers (28.5 million plus) after Bharti, RCOM, Vodafone and BSNL and move ahead of Tata Teleservices, with 25 million subscribers. Idea has been allotted spectrum in the 11 circles where it does not operate and is readying plans to roll out services there. It is set to become a pan-India operator by 2009.

Spice Communications is 39.2% owned by Malaysia’s state-controlled Telekom Malaysia. The BK Modi family holds 40.8% through Modi Wellvest while the rest 20% is held by the public and financial institutions.

TM is an emerging leader in the Asian communications market with a presence in Indonesia, Singapore, Cambodia, Thailand, Bangladesh, Pakistan, India, Sri Lanka and Iran besides Malaysia. TM’s investment philosophy is to play an active role in its international operations, with an emphasis on management control, which it has been seeking in Spice for almost a year now. TM’s regional mobile customer base (across nine countries) was 39.8 million in 2007 end.

39.2%
TELEKOM MALAYSIA’S STAKE

$ 850m
MARKET CAP OF SPICE COMM

4.4m
SPICE’S SUBSCRIBER BASE

MAIN ATTRACTIONS

Strong foothold in Punjab and Karnataka circles Spectrum in 900 MHz band, which can accommodate more subscribers than the 1,800 MHz band used by other GSM operators