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RCom-Aircel extend merger deal talks by 2 months

The companies have been in talks to mutually derive benefits of in-country consolidation, including opex and capex synergies and revenue enhancement.

, ET Bureau|
Updated: Mar 24, 2016, 02.01 AM IST
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The companies have been in talks to mutually derive benefits of in-country consolidation, including opex and capex synergies and revenue enhancement.
The companies have been in talks to mutually derive benefits of in-country consolidation, including opex and capex synergies and revenue enhancement.
NEW DELHI: Reliance Communications is continuing exclusive talks with the promoters of Aircel on combining their wireless businesses, extending the period by 60 days to May 22 following “good progress made so far.”

“The discussions are nonbinding in nature. Any transaction is subject to completion of due diligence, definitive documentation and regulatory, shareholders’ and other third-party approvals,” RCom said in a notice to the BSE after the markets closed.

“Hence, there is no certainty that any transaction will result.” The Anil Ambani-run telco’s stock ended unchanged at Rs 51.95 on the BSE. RCom, India’s fourth-largest carrier, has been in merger talks with Maxis Communications Berhad and Sindya Securities and Investments Pvt. Ltd., the promoters of Aircel, for a 90-day period since December 22.

RCom is simultaneously merging Sistema Shyam Teleservices’ wireless business with itself. Under the structure being discussed, RCom is likely to combine its wireless business with Aircel.

Both RCom and Aircel’s promoters will hold 50% each in the merged entity, which would be renamed and could emerge as India’s No. 3 carrier by users, ahead of Idea Cellular and trailing market leader Bharti Airtel and Vodafone India. The two telcos want to close the deal by September.

The transaction is contingent on the companies paring debt and transferring Rs 14,000 crore of borrowings each to the combined entity, people familiar with the development told ET earlier. RCom had Rs 40,479 crore of debt as of December 31, while Aircel has about Rs 18,000 crore.

RCom’s attempt to cut debt by selling stake in its tower business has hit a hurdle, with potential financer TPG unhappy at the Rs 21,500 crore valuation being discussed. Partner Tillman Global Holdings has to scout for a replacement to fund the buyout, thus delaying the sale.

A merger would help both companies stay relevant in an intensely competitive market as India. Individually, the companies – both struggling with debt and falling market share – have no way of challenging their bigger rivals.

Sources told ET earlier that the RCom-Aircel deal would create an entity with revenue of about Rs 25,000 crore annually, earnings before interest, taxes, depreciation and amortisation of about Rs 6,000 crore and an Ebitda margin of 25%. Idea Cellular posted an EBITDA of Rs 9,768 crore and an Ebitda margin of 32% on FY15 revenue of Rs 31,555 crore.

The two companies will also benefit from operational and capital expenditure synergies and larger revenue after a deal, RCom said Wednesday.

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