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RCom, Aircel and Sistema discussing merger possibility

India’s number four Reliance Communications (RCom) is reportedly discussing a merger with two of the smaller operators, Aircel and Sistema (SSTL).

The combined entity would become India’s third-largest operator. Negotiations between RCom and Sistema began in June, and are now in an advanced stage. The agreement would see these two firms merge via a stock swap agreement, with Aircel potentially coming in at a later phase.

With due diligence between RCom and Sistema now reportedly complete, the firms’ boards will finalise the deal in November. SSTL is expected to take a stake of between 8% and 10%, while RCom will take the remainder.

The main motivation for RCom and Aircel is debt reduction; RCom is divesting holdings in its overseas and tower units, while Aircel is attempting to sell 4G spectrum to Bharti Airtel. It has been claimed that RCom is reluctant to undergo a full-scale merger and would instead prefer to trade and share spectrum.

However, a more typical merger could result in Aircel’s parent company Maxis becoming the largest stakeholder, rather than RCom owner, the Anil Ambani group. The former would likely receive a stake of around 30-40%, while Anil Ambani’s would be less than 30%. Sistema’s holding would be less than 10%, with the remainder divided among RCom shareholders.

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