RCom MTS Merger Approved in a Rs. 5000Cr All Stock Deal


Anil Ambani led Reliance Communication has today officially agreed merger of Sistema Shyam Teleservices (SSTL’s) wireless business MTS with itself in a cashless deal valued at around Rs 4,500-5,000 crore according to a ET report.

The speculation of the merger between the two companies have been around for a few months now – in June, RCOM informed BSE about the possible talks, but had not confirmed anything back then. In today’s board meeting the merger was officially approved.

Sistema, which is a Russian business conglomerate led by Vladimir Yevtushenkov had initiated their Indian telecom venture in 2007, when he bought 10% stake in Shyam Telelink by paying $11.4 million.

They named their venture Sistema Shyam Teleservices, wherein Sistema currently holds 56.68%, Russian Govt. holds 17.14% stake; Shyam Group has 23.98% stake and the rest is owned by small investors. They offer MTS brand of wireless communication services across 9 telecom circle in India.

As of August 2015, Reliance Communication had 109,950,781 subscribers, whereas Sistema had 8,435,671 according to TRAI. The combined entity will now have just over 118 million subscribers. In comparison, Bharti Airtel had 232 mln, Vodafone had 186.5 mln and Idea had 164 mln by end of August 2015.

Merger Deal

As per the deal, Sistema Shyam Teleservices will acquire 10 percent equity in RCOM and latter will pay t he liability towards SSTL’s spectrum amounting to Rs. 392 crore per annum for next 10 years. Currently, MTS has debts and liabilities of Rs 3200 crore, which will not be RCOM’s responsibility post the merger.

Sistema shareholders will get 1.1 shares of Reliance Communication for 11 shares of SSTL. RCom will acquire approx Rs.1,500 crore of annual revenue by virtue of the transaction.

Why the Merger?

The biggest reason for merger is ofcourse the huge gain in spectrum which RCom will acquire from SSTL which has superior 800/850 MHz band spectrum, suited for 4G LTE (long-term evolution).

With this deal RCom will future-proof almost half of their existing telecom circles, where most of their licenses are expiring in the next few years. For example, their license in West Bengal will expire in 2017, and around 10-12 licenses will expire within 2022-23.

On the other hand, Sistema had bought license in 8 telecom circles, which will expire in 2033: Delhi NCR, Kolkata, Gujarat, Karnataka, Tamil Nadu, Kerala, Uttar Pradesh (West) and West Bengal.

Thus, Reliance will get hold over airwaves in these 8 circles, without spending a fortune, as these spectrum were purchased under auction, and the merger rules gives Reliance free hand to use them post-merger.

Other than the spectrum gains, this merger is also a preemptive move by Reliance Communications, so that they have enough infrastructural capability to counter the incoming onslaught from likes of Reliance Jio and others in this space.

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