Merger between RCom and Aircel set to go ahead

RCom and Aircel have signed official documents that will lead to “the largest-ever consolidation in the Indian telecom sector”.

The combination of the Indian number four and its smaller rival would push the resulting entity into third place in India’s competitive market, with around 188 million mobile connections giving it a market share of 18%.

This would position it ahead of the current third placed operator Idea Cellular, which has a 17% share with 175 million connections, and just behind number two Vodafone India, which has a 19% share with 198 million. Bharti Airtel leads the market with 254 million connections giving it a 25% share.

The merged unit – currently known as MergedCo – will be split evenly between the RCom and Aircel’s parent Maxis Communications, with each holding 50% and being represented equally on the board and committees.

The companies are also looking for a third partner to generate equity of INR60 billion ($895 million). It has been reported that they are in talks with Russian group Sistema, which has a 10% stake in RCom following the Indian firm’s acquisition of Sistema Shyam Teleservices last year for around $690 million.

Merger negotiations between RCom and Aircel had been underway for almost a year, with the exclusivity period for talks twice extended. The parties agreed fairly early on that if they went ahead with the decision, the resulting entity would have a 50:50 ownership structure.

RCom is including its wireless business in the merger, and is spinning off the unit from the main company to enable this. The operator will retain ownership of its data centre, enterprise and fibre optic assets. The agreement still requires approval from shareholders and the regulator, as well as lender’s consent, but if these are granted it is expected to close in 2017.

The merged unit will be able to enjoy spectrum sharing and trading agreements struck between RCom and newcomer Reliance Jio Infocomm after the regulator TRAI relaxed the rules on these practices last year. The debutante firm is managed by Mukesh Amabani, the brother of Reliance Group chairman Anil Ambani.

Jio acquire 800MHz spectrum across nine regions from RCom, while the firms agreed to share bandwidth in 17 of India’s 22 service areas.

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