RCom and Aircel set to merge in July

The ongoing merger talks between Indian number four RCom and smaller Aircel have reportedly led to an agreement due to wrap within a month.

Discussions have been underway since December, and having made “substantial progress” the two operators last month decided to add a further 30 days to the exclusivity period. The resulting deal will mark the first time that two local operators have merged in India.

Reliance Communications and Maxis, which owns Aircel, had already agreed to a preliminary 50:50 ownership structure in the event of a merger, and the two operators are now finalising commercial and legal terms. The deal will provide RCom with an additional INR15 billion in annual revenue.

The resulting entity would have around 188 million mobile connections – 9 million more than RCom’s current total - knocking Idea Cellular’s 174 million connections into third place. RCom has a market share of almost 10%, while Aircel has around 8.5%. The merged entity would still tail behind market leader Bharti Airtel (250 million connections) and number two Vodafone India (197 million).

The joint entity is expected to take the form of a wireless unit comprised of Aircel and RCom’s spun-off wireless branch, which will receive a debt transfer of INR14 billion ($208 million) from each party. The merged entity will use a new brand name and will not be listed for its first few years of operation, and RCom will retain its tower and overseas units.

Last year, RCom signed an acquisition agreement that saw it take over Sistema Shyam Teleservices for around $690 million. Russian conglomerate Sistema will take a 10% stake in the listed RCom.

In addition to the proposed merger, RCom has been forming spectrum sharing and trading agreements after the rules on these practices were relaxed last year by Indian regulator TRAI. RCom formed an arrangement with newcomer Reliance Jio in January, with the latter firm buying 800MHz spectrum from RCom across nine regions as well as sharing bandwidth in the same frequency band across 17 telecom circles.

For its part, Aircel agreed in April to sell 4G spectrum to Airtel across eight telecom circles for a total of INR35 billion. The deal will give the market leader the pan-Indian 4G cover it needs to compete with Jio’s nationwide 4G network, while allowing Aircel to shave INR 40 billion off its  INR180 billion debt prior to the planned RCom merger.

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